The portion of Imperial Oil Limited's summary of significant accounting policies dealing with property, plant, and equipment was presented earlier in this chapter, in Exhibit 8-11. As indicated earlier, Imperial Oil operates Esso retail gas stations throughout Canada and is a major Canadian producer of crude oil and natural gas.
Required:
a. What method does Imperial Oil use to account for its costs related to exploration and development activities? Explain in your own words how these costs are handled under this method.
b. What reason does Imperial Oil give for choosing this method of accounting for costs related to its exploration and development activities? Explain in your own words what you think this means.
c. Is the method that Imperial Oil uses to account for exploration and development costs the method that you would expect a large oil and gas company to use? Explain why or why not.