Augusta Oil Corporation, an independent producer, began operations in June 20XA. During the first 2 years of

Augusta Oil Corporation, an independent producer, began operations in June 20XA.

During the first 2½ years of operation, Augusta acquired only two U.S. properties, which were noncontiguous. Costs incurred on those properties during those 2½ years are given below, net of accumulated DD&A. Augusta drilled three dry holes and one successful well. No equipment was salvaged from the dry holes. Production on the successful well started on January 1, 20XB. During 20XC, Augusta incurred total IDC of $100,000 on Lease A (in wells-in-progress—IDC at 12/31/20XC) and $200,000 on Lease B (in wells-in-progress—IDC at 12/31/20XC). All 20XC IDC on both leases was incurred early in May. All reserve, production, and sales data below apply only to Augusta Oil Corporation.

Costs incurred 6/20XA through 12/20XC:

Augusta also placed in service on 1/1/20XB a building that cost $117,000 and has a life of 25 years, with a salvage value of $7,000. The building houses the corporate headquarters that supports oil and gas operations in the United States and non–oil and gas operations in Mexico. The operations conducted in the building are general in nature and are not directly attributable to any specific exploration, development, or production activity. The building is not directly related to exploration, development, or production and supports activities in more than one cost center. As such, it is depreciated using straight-line depreciation for financial accounting.

a. Compute DD&A for 20XC for the following accounting methods assuming that Augusta is an independent producer:
1) Successful efforts.
2) Full cost, assuming inclusion of all possible costs in the amortization base.
Ignore the revenue method.
3) Tax: ignore percentage depletion, use proved reserves to compute cost depletion, and assume that the cost of the equipment and the building are gross costs.

b. Calculate DD&A for tax, assuming instead that Augusta is an integrated producer.

Transcribed Image Text:

Related G&G costs $ 20,000 Bonus...... 30,000 Lease A Lease B $ 40,000 50,000 Delay rentals, cumulative... 10,000 5,000 Wells-in-progress IDC (at 12/31/20XC). 100,000 200,000 Dry exploratory wells IDC..... 250,000 300,000 Dry exploratory wells L&WE.. 50,000 75,000 Successful exploratory well- IDC. Successful exploratory well-L&WE. 400,000 150,000