Ibis Company enters into a concession agreement with the British Government. Ibis pays the government a $10,000,000
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- Ibis Company enters into a concession agreement with the British Government. Ibis pays the government a $10,000,000 (U.S.) signing bonus and agrees to pay the government royalties of 8% of gross production and 5% Severance tax. Ibis bears all of the costs associated with exploration, development, and production. In 2013, Ibis spends $7,000,000 on exploration and drilling costs. Gross revenue was $5,000,000, and production costs were $2,000,000. The income tax laws allow deduction of all production costs, with exploration and drilling costs deductible over a seven-year period. The tax rate is 40%.
- Required: Show how the gross revenue for 2012 would be shared by the parties.
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