Question 6
(Note this question is from the Week 11 Tutorial)
(11 marks)
Assume that Hunter Ltd commences operations on 1/7/2018. It explores two areas (Site East and Site
West) and incurs the following costs:
Exploration & Evaluation Expenditure ($m) tangible intangible
Site East
18
12
6
Site West
24
15
9
Total
42
Other information:
• Financial year ends at 30 June.
• In the year of 2018, oil is discovered at Site West. Site East is abandoned as no prove of existence
of economically recoverable resources, and an impairment loss is recognised.
• Of Site East, $12 million relates to tangible assets, $6 million intangible assets.
• Of the $24 million of Site West, $15 million relates to tangible assets, $9 million intangible.
• Development costs of $26m are incurred at Site West in 2019. Out of the $26m, $16 million are
property, plant and equipment, $10 million are in intangibles.
• Development costs are to be written off on a production basis in 2019 for Site West. Development
at Site West concludes at the end of 2019 financial year, production commences at the start of
July 2020.
• It is estimated that Site West will produce 20 million barrels of oil.
• In 2020, 1.4m barrels are extracted at a production cost of $3.2m.
Required:
Prepare the necessary journal entries for the costs incurred in 2018, 2019 and 2020 (using the area-
of-interest method of accounting). (11 marks. Word limit: n/a)
