Financial Accounting Regulation Assignment
Module - Accounting for the Extractive Industries
Augusta Ltd incurs the following exploration and evaluation costs at two sites, Cooberand Pedy for 2016:
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Sites
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($m)
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Coober
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60
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Pedy
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27
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In 2016, oil is discovered at Coober site. However, Pedysite is abandoned.
Exploration and evaluation costs incurred at Coobersiteare considered 80% expenditure relating to property, plant and equipment and 20% relating to intangible assets.
During 2016, development costs of $30 million are incurred at Coober site (to be written off on a production basis). $22million of this expenditure relates to property, plant and equipment and $8 million relates to intangible assets.
Towards the end of 2016 the pre-production phase finishes and moves into the production phase.
Coober site is estimated to have 24 million barrels. 16 million barrels are extracted at a production cost of $10 million which is accounted for as part of the inventory cost.
4 million barrels are sold and the current sale price is $30 per barrel.
Required:
i) Provide the necessary journal entries using the area of interest method.
Include narrations for each entry and present your journals in a word document using a similar table as presented below. Use 2016 as the date.
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Date
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Particulars
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Debit
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Credit
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ii) Prepare an Income statement for Coober Site, calculating gross profit only (i.e. net profit is not required). Assume the perpetual inventory system is used.
iii) Calculate the gross profit ratio for the Coober site.