Question (10 marks) Burney Island Ltd commences operations on 1 January 2017. During 2017, Fraser Island explores two areas and incurs the following costs. Area Exploration and Evaluation Expenditure (m) Alfa Bora Total Other information In 2018 oil is discovered at Site Bora. Site Alfa is abandoned owing to the failure to prove the existence of economically recoverable resources, and an impairment loss is recognised in relation to Site Alfa. Of the $8 million incurred at Site Bora, $5 million relates to tangible assets and $3 million relates to intangible assets. At Site Alfa, $12 million of the expenditure related to tangible assets and $5 million related to intangible assets. Development costs of $20 million are incurred at Site Bora (to be written off on a production basis) in 2018. The development costs include $12 million in property, plant and equipment and $8 million in intangibles. This expenditure will be depreciated/amortised on a production basis. Development at Site Bora concludes at the beginning of 2018, and production also commences at Site Bora at the start of 2019. It is estimated that the amount of oil at Site Bora is 8 million barrels. The current sale price is $30 per barrel. In 2019, Burney Island Ltd extracts 1.2 million barrels at a production cost of $3.6 million and sells 1.1 million barrels. REQUIRED Provide the necessary journal entries using the area-of-interest method. Question (10 marks) Burney Island Ltd commences operations on 1 January 2017. During 2017, Fraser Island explores two areas and incurs the following costs. Area Exploration and Evaluation Expenditure (m) Alfa Bora Total Other information In 2018 oil is discovered at Site Bora. Site Alfa is abandoned owing to the failure to prove the existence of economically recoverable resources, and an impairment loss is recognised in relation to Site Alfa. Of the $8 million incurred at Site Bora, $5 million relates to tangible assets and $3 million relates to intangible assets. At Site Alfa, $12 million of the expenditure related to tangible assets and $5 million related to intangible assets. Development costs of $20 million are incurred at Site Bora (to be written off on a production basis) in 2018. The development costs include $12 million in property, plant and equipment and $8 million in intangibles. This expenditure will be depreciated/amortised on a production basis. Development at Site Bora concludes at the beginning of 2018, and production also commences at Site Bora at the start of 2019. It is estimated that the amount of oil at Site Bora is 8 million barrels. The current sale price is $30 per barrel. In 2019, Burney Island Ltd extracts 1.2 million barrels at a production cost of $3.6 million and sells 1.1 million barrels. REQUIRED Provide the necessary journal entries using the area-of-interest method