Accounting for oil and gas

Following are independent cases. Please check the accounting treatments and given calculations wherever provided. Specifically, you are expected to COMMENT on whether the accounting treatment is correct or not. If you agree or disagree, EXPLAIN your answer and provide Calculations if needed.

A. During 2018, Nasara Oil Company acquired lease Z and drilled Well A to 8,000 feet at a cost of $55,000. No reserves were found at 8,000 feet. Two months later, the company decided to drill Well A to 12,000 feet and incurred an additional drilling cost of $20,000. Reserves were found at 12,000 feet. The company's accountant expensed the $55,000 and capitalized the $20,000.

B. A successful efforts company reported $3,500,000 net capitalized cost at the end of the year. The proved reserves at the beginning of the year were 60,000,000 bbl which included 12,000,000 bbl associated with significant future development costs. The production during the year was 300,000 bbl. The company's accountant reported DD&A expense of $17,500.

C. Yang Oil Company drilled an exploratory well and incurred a total of $120,000 for IDC and $75,000 for equipment during 2019. On December 31, 2019, the results of the well were undetermined at the end of the first year. Yang's accountant assumed that the well is dry and decided to expense the above costs.

D. Nail Oil Company has constructed an offshore drilling platform costing RO 20,000,000 to drill. At the end of 2015, all wells have been drilled at a cost of RO 2,500,000. Nali computed DD&A expense using RO 20,000,000.