Week 8Gem Limited commences operations on 1 January 2019. During 2019 Gem Limited explores threeareas and incurs the following costs:Exploration and Evaluation expenditure ($)Desirable 25,000,000Undesirable 20,000,000Neutral 28,000,000In 2020 oil is discovered at Desirable Site. Undesirable Site is abandoned. Neutral Site has not yet reacha stage that permits a reasonable assessment at the existence or otherwise of economicallyrecoverable reserves, and active and significant operations in the area of interest are continuing. Inrelation to the exploration and evaluation expenditures incurred at Desirable Site and Neutral Site, 70percent of the expenditures related to property, plant and equipment, and the balance relates tointangible assets.In 2020, development costs of $48,000,000 are incurred at Desirable Site (to be written off on aproduction basis). $32,000,000 of this expenditure relates to property, plant and equipment, and thebalance relates to intangible assets. The development of Desirable Site is completed but theproduction is not started yet. (i.e. there is no production, inventory and sales)Required:Provide the necessary journal entries using the area-of-interest method
Week 8
Gem Limited commences operations on 1 January 2019. During 2019 Gem Limited explores three
areas and incurs the following costs:
Exploration and Evaluation expenditure ($)
Desirable 25,000,000
Undesirable 20,000,000
Neutral 28,000,000
In 2020 oil is discovered at Desirable Site. Undesirable Site is abandoned. Neutral Site has not yet reach
a stage that permits a reasonable assessment at the existence or otherwise of economically
recoverable reserves, and active and significant operations in the area of interest are continuing. In
relation to the exploration and evaluation expenditures incurred at Desirable Site and Neutral Site, 70
percent of the expenditures related to property, plant and equipment, and the balance relates to
intangible assets.
In 2020, development costs of $48,000,000 are incurred at Desirable Site (to be written off on a
production basis). $32,000,000 of this expenditure relates to property, plant and equipment, and the
balance relates to intangible assets. The development of Desirable Site is completed but the
production is not started yet. (i.e. there is no production, inventory and sales)
Required:
Provide the necessary
Step by step
Solved in 2 steps with 4 images
