Bigspill Gas & Oil Ltd began operations on 1 July 20X1.During the year ended 30 June 20X2,Bigspill explored five different areas of interest and spent $200 000 in each area.The exploration results indicated that three areas were likely to be productive and Bigspill acquired leases over the three areas at costs of $400 000,$720 000 and $480 000 respectively.Under the successful-efforts method of accounting for exploration and evaluation costs in the extractive industries,Bigspill would include which of the following amounts in its statement of financial position as at 30 June 20X2 for Exploration and Evaluation Costs?

Question

Quizplus · Accepted Answer

Under the successful-efforts method of accounting, exploration and evaluation costs are capitalized only for areas where there are indications of mineralization and are written off for areas where there are no indications of mineralization. In this case, Bigspill spent $1,000,000 in total on exploration in five different areas, but only spent $1,600,000 to acquire leases over three areas that showed indications of mineralization. Thus, the correct amount to include in the statement of financial position for Exploration and Evaluation Costs as at 30 June 20X2 is $2,200,000 ($1,600,000 + $400,000 + $200,000).

Bigspill Gas & Oil Ltd Began Operations on 1 July