QUESTION 2 During the year ended 31 December 2017 Calga Mines Ltd spent $500 000 to acquire speculative seismic data in relation to three areas of interest to determine whether to apply for an oil exploration licence for these areas. It was decided to purchase exploration licences for the areas of interest of Beverly and Hillbilly. Calga Mines Ltd incurs the following exploration and evaluation costs at two sites, Beverly and Hillbilly, during 2018: Year Beverly Hillbilly (8 000) ($ 000) 2018 7 500 6 000 In relation to the above expenditure, 40 per cent alates to intangible assets and the balance of the expenditure relates to property, plant and equipment. At the end of 2018 financial year, oil of an economically recoverable nature is discovered at Beverly, but Hillbilly is abandoned. Following the discovery of oil at Beverly, roads and other infrastructure of a fixed nature are constructed in 2019 at a cost of $2 000 000 Production at Beverly begins in 2019 financial year. Beverly site is estimated to have 2 000 barrels. The current sale price is $15 000 per barrel. During 2019, 500 barrels are extracted at a total production cost of $1 000 000 and 100 barrels are sold. REQUIRED Provide the journal entries for 2017, 2018 and 2019 using the area-of-interest method. Assume pre-production costs are amortised or depreciated using the production-output method. Exclude journal narrations. (18 marks) QUESTION 2 During the year ended 31 December 2017 Calga Mines Ltd spent $500 000 to acquire speculative seismic data in relation to three areas of interest to determine whether to apply for an oil exploration licence for these areas. It was decided to purchase exploration licences for the areas of interest of Beverly and Hillbilly. Calga Mines Ltd incurs the following exploration and evaluation costs at two sites, Beverly and Hillbilly, during 2018: Year Beverly Hillbilly (8 000) ($ 000) 2018 7 500 6 000 In relation to the above expenditure, 40 per cent alates to intangible assets and the balance of the expenditure relates to property, plant and equipment. At the end of 2018 financial year, oil of an economically recoverable nature is discovered at Beverly, but Hillbilly is abandoned. Following the discovery of oil at Beverly, roads and other infrastructure of a fixed nature are constructed in 2019 at a cost of $2 000 000 Production at Beverly begins in 2019 financial year. Beverly site is estimated to have 2 000 barrels. The current sale price is $15 000 per barrel. During 2019, 500 barrels are extracted at a total production cost of $1 000 000 and 100 barrels are sold. REQUIRED Provide the journal entries for 2017, 2018 and 2019 using the area-of-interest method. Assume pre-production costs are amortised or depreciated using the production-output method. Exclude journal narrations. (18 marks)
