20.1 Define ‘area of interest’
20.5 When should a company in the extractive industries start accounting for its restoration
costs?
20.6 Assume that a company is not legally required to restore the land after it has ceased mining.
Nevertheless, it has determined that it will restore the land because ‘it is the right thing to
do’. Would the company recognise a liability?
20.11 Would it be permissible for a company operating in the extractive industries to write off all
exploration and evaluation expenditures, regardless of the ultimate success of a site?
20.14 Surfcity Mining Ltd incurs the following exploration and evaluation costs at two sites, Ian and
Eddie, over the years: indicated:
Ian Eddie
2017 $1500 $2000
2018 $2000 $3000
2019 $3000 $4000
In relation to the above expenditure, in each year 20 per cent relates to intangible assets and the
balance of the expenditure relates to property, plant and equipment. At the end of 2019, oil of an
economically recoverable nature is discovered at Ian, but Eddie is abandoned.
Following the discovery of oil at Ian, roads and other infrastructure of a fixed nature are constructed
in 2020 at a cost of $2000. Portable buildings, with a life of 10 years, are also put in place. These
buildings cost $500.
Production at Ian begins in 2020. It is envisaged that the Ian site would contain 1500 barrels. The
sale price of each barrel is $25. The incremental production costs associated with each barrel are
$5. During 2020, 400 barrelsꞏ are extracted, of which 250 are sold.
Assets are amortised or depreciated using the production-output method, except where such
assets can be redeployed elsewhere, in which case their individual useful life is used.
REQUIRED
Provide the journal entries for 2017 to 2020
using: (a}ꞏ the area-of-interest method
