Question 1

Extracto Ltd commences operations on 1 January 2007, During 2007 Extracto Ltd exploresthree areas and incurs thefollowing costs :Exploration and evaluation expenditure($m)

Good23

Bad16

Indifferent25

In 2008 oil is discovered at Good Site . Bad Site is abandoned . Indifferent Site has not yetreached a stage thatpermits a reasonable assessment of the existence or otherwise of economically recoverablereserves, and active andsignificant operations in the area of interest are continuing. In relation to the exploration andevaluation expendituresincurred at Good Site and Indifferent Site, 80 per cent of the expenditures relate to property,plant and equipment, and thebalance relates to intangible assets .In 2008 development costs of $27 million are incurred at Good Site to be written off on aproduction basis .$20 million of this expenditure relates to property, plant and equipment, and the balancerelates to intangible assets . GoodSite is estimated to have 15 000 000 barrels . The current sale price is $30 per barrel . Threemillion barrels are extractedat a production cost of $4 million and 1 .9 million barrels are sold.

REQUIRED

Provide the necessary journal entries using :a). the area-of interest method

IFRS - AASB 116, AASB 6 etc....