Exercise 34.8 During the year ended 30 June 2020, Resources Ltd explored four different areas of interest and spent $101,600 in each. The results of E&E activities suggested that Areas A, B and C may contain mineral reserves so the company acquired leases over these three areas. The leases cost $163,000, $218,400 and $185,900 respectively. During the year ended 30 June 2021, Resources Ltd commenced a drilling program to evaluate Areas A, B and C. Eight exploratory wells were drilled, five in Area A, two in Area B and one in Area C at a cost of $116,000 each. The five wells drilled in Area A did not result in any mineral resource findings (i.e. they were dry holes). The two wells drilled in Area B indicated that the company had discovered economically recoverable reserves. Management was uncertain about the likelihood of finding economically recoverable reserves for the well in Area C as some mineral reserves were found but not enough to be considered economically recoverable at this stage. Therefore, Resources Ltd decided to continue E&E activities in Area C as of 30 June 2021. Area A was abandoned, and, after incurring costs of $50,900 to confirm the technical feasibility and commercial viability of extracting the mineral resources, development of Area B commenced. During the year ended 30 June 2022, to evaluate the area of interest further, three more wells were drilled in Area B. Of these, two were dry. Each well cost $132,200. The successful wells in Area B were developed for a total cost of $283,400. Expenditure on additional plant and equipment related to development was $293,300. After further dry wells costing $163,700 were drilled in Area C, management concluded that Area C did not contain any commercially viable quantities of mineral resources, so it was abandoned. These costs are summarised as follows.

QUESTION: Determine what amounts would be recognised as an expense (in the profit or loss) versus capitalised as an asset, in relation to each area of interest for each financial year assuming Resources Ltd capitalises all E&E costs on an area of interest basis.

A 101,600 163,000 580,000 Costs incurred for each area of interest 30/06/2020 Exploration Leases 30/06/2021 Dry wells Other wells Technical feasibility/commercial viability costs 30/06/2022 Dry wells Other wells Development PPE Total B D Total 101,600 101,600 101,600 406,400 218,400 185,900 567,300 580,000 232,000 116,000 348,000 50,900 50,900 264,400 163,700 428,100 132,200 132,200 283,400 283,400 293,300 293,300 1,576,200 567,200 101,600 3,089,600 844,600