Question 12 only

11 Would it be permissible for a company uation expenditures, regardless of the ultimate success of a site? LO 20.3, 20.4, 20.7 because exploration and mining activities are inherently risky and uncertain, all exploration and evaluation expenditures should be pyn as incurred.' REQUIRED Evaluate this statement. LO 20.3, 20.4 13 Extracto Lid commences operations on 1 January 2013. During 2013 Extracto Lid explores three areas and incurs the following coster Exploration and evaluation expenditure ($m) Good 23 Bad 16 Indifferent 25 In 2014 oil is discovered at Good Site. Bad Site is abandoned. Indifferent Site has not yet reached a stage that permits a reasonable assessment of the existence or otherwise of economically recoverable reserves, and active and significant operations in the area of interest are continuing. In relation to the exploration and evaluation expenditures incurred at Good Site and Indifferent Site, 80 per cent of the expenditures relate to property, plant and equipment, and the balance relates to intangible assets. In 2014 development costs of $27 million are incurred at Good Site (to be written off on a production basis). $20 million of this expenditure relates to property, plant and equipment, and the balance relates to intangible assets. Good Site is estimated to have 15000 000 barrels. The current sale price is $30 per barrel. Three million barrels are extracted at a production cost of $4 million and 1.9 million barrels are sold. REQUIRED Provide the necessary journal entries using: (a) the area-of-interest method (b) the full-cost method. LO 20.2, 20.4, 20.5, 20.6, 20.10 14 Surfcity Mining Lid incurs the following exploration and evaluation costs at two sites, lan and Eddie, over the years indicated: lan