Question
On Kangaroo Island off the coast of Adelaide, a band of former gas explorers believe they are on the verge of discovering the holy grail
On Kangaroo Island off the coast of Adelaide, a band of former gas explorers believe they are on the verge of discovering the holy grail of cheap, clean energy: naturally occurring "gold" hydrogen. Mark Hanna, chief executive of H2EX and also a former Woodside executive, said he first heard about natural hydrogen two years ago from contacts in France, where companies such as 45-8 Energy are searching for the gas.
H2EX has raised enough capital to conduct preliminary exploration. If that is successful, Hanna says the group will have to raise about AUD20 million to start drilling "two or three wells" in the most promising locations. Assuming it is a success, serious production could then begin. But he said that was several years away.
Required:
Should the exploration expenditure of AUD 20 million be recognised as an asset in the financial statements of H2EX? If not, what should the item be recorded as?
Explain your answer with reference to the Conceptual Framework definition and recognition criteria of an asset.
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