Question

(a)Discuss the major differences between impairment rules for proved properties and unproved properties for successful efforts companies.

(b)Sandman Oil Company, a successful efforts company, has three fields, A, B, and C.Costs and cash flows for the three fields are as follows:

Field AField BField C

Net capitalized costs4,000,0005,000,0006,000,000

Expected undiscounted future cash flows4,500,0004,000,0005,000,000

Expected discounted future cash flows3,850,0003,900,0003,700,000

For each field (1) determine if impairment is required, and (2) if applicable, calculate the amount of the impairment