Council of Petroleum Accountants Societies (COPAS) provides two methods that petroleum companies may use to accounting their business transactions. These method are (i) Successful efforts and full cost methods and (ii) Tax method.

Upstream, the accumulated capitalized costs from Exploration & Evaluation (E&E) and development phases are amortized over the expected total production using a Units Of Production (UOP) basis. Downstream, depreciation is allocated on a systematic basis using either the straight-line method or the throughput method. IFRS has a specific requirement for component depreciation, as described in IAS 16

Required:

a) Write brief notes, illustrating with examples, on

i. Successful efforts and full cost methods (0.5 Mark)

ii. Tax method (0.5 Mark)

b) Using appropriate numerical examples, describe each of the following amortization/depreciation methods and explain how it is used

i. The UOP method (0.5 Mark)

ii. The Straight-line method (0.5 Mark)

iii. Component Depreciation (1 Marks)