Question 4 Adams Mining Ltd incurs the following exploration and evaluation costs at two sites, Brown and Steel, over the following financial years: Brown Steel 2017 $305,000 $500,000 2018 $300,000 $400,000 Of the above expenditures, 25% were determined to relate to intangible assets, and 75% to property, plant and equipment. At the end of the 2018 financial year, economically recoverable oil reserves are discovered at the Brown site, but the Steel site is abandoned. Following the discovery of oil at the Brown site, roads and other fixed infrastructure are constructed during the 2019 financial year at a cost of $220,000. Production at the Brown site begins in the 2020 financial year. It is envisaged that the Brown site contains 10,500 barrels of oil. The sale price of each barrel is $35. During 2020.4,000 barrels of oil are extracted at a production cost of $220,000, of which 2,500 barrels are sold. Assets are amortised or depreciated using the production-output method. Required: In accordance with AASB 6 Exploration for and Evaluation of Mineral Resources using the area-of-interest method; AASB 116 Property, Plant and Equipment; AASB 102 Inventories and AASB 138 Intangible Assets: a) Provide the journal entries required for the financial years ending 2017, 2018, 2019 and 2020. (16 marks) Provide your answer here In the extractive industries several approaches have been used over time to account for exploration and evaluation costs: being the expense method the expense and reinstate method. the full cost method and the successful efforts method. Required: b) With reference to the Conceptual Framework for Financial Reporting describe which approach is consistent with the definition and recognition criteria and why. (4 marks) Provide your answer here (Total=20 marks) Question 4 Adams Mining Ltd incurs the following exploration and evaluation costs at two sites, Brown and Steel, over the following financial years: Brown Steel 2017 $305,000 $500,000 2018 $300,000 $400,000 Of the above expenditures, 25% were determined to relate to intangible assets, and 75% to property, plant and equipment. At the end of the 2018 financial year, economically recoverable oil reserves are discovered at the Brown site, but the Steel site is abandoned. Following the discovery of oil at the Brown site, roads and other fixed infrastructure are constructed during the 2019 financial year at a cost of $220,000. Production at the Brown site begins in the 2020 financial year. It is envisaged that the Brown site contains 10,500 barrels of oil. The sale price of each barrel is $35. During 2020.4,000 barrels of oil are extracted at a production cost of $220,000, of which 2,500 barrels are sold. Assets are amortised or depreciated using the production-output method. Required: In accordance with AASB 6 Exploration for and Evaluation of Mineral Resources using the area-of-interest method; AASB 116 Property, Plant and Equipment; AASB 102 Inventories and AASB 138 Intangible Assets: a) Provide the journal entries required for the financial years ending 2017, 2018, 2019 and 2020. (16 marks) Provide your answer here In the extractive industries several approaches have been used over time to account for exploration and evaluation costs: being the expense method the expense and reinstate method. the full cost method and the successful efforts method. Required: b) With reference to the Conceptual Framework for Financial Reporting describe which approach is consistent with the definition and recognition criteria and why. (4 marks) Provide your answer here (Total=20 marks)
