Please explain where do those numbers that I highliged and c

E8.8 Journal entries for two periods for interest in an oil and gas joint operation Section 8.6.3) Extraction Ltd has recently undertaken successful oil exploration activities and was granted the right to mine economically viable reserves of iron ore in central Australia, though it lacks sufficient resources to develop and operate the site successfully. Therefore it agreed to form a joint operation with Mining Ltd to install production facilities to extract the reserves. The joint arrangement was signed on 1 October 20X9 with Extraction Ltd and Mining Ltd each having a 50% interest in the operation. The initial contributions to the joint Operators were included in the joint venture agreement and were as follows: Initial contributions of joint operation Extraction Ltd Deferred exploration and evaluation expenditure Equipment Cash 1000000 1000000 3000000 5000000 Mining Ltd Cash 5000000 The joint arrangement also states that the joint operators own the joint operation assets as tenants in common, and the risks and benefits of ownership are to be shared equally As the necessary requirements of AASB 6. Aus 7.2 can be satisfied, the deferred exploration and evaluation expenditure had been recorded in the accounts of Extraction Ltd at $400000 The equipment contributed to the joint operation by Extraction Ltd was new and recorded at $800000. Extraction Ltd decided not to revalue its remaining interest in the non-current assets contributed to the joint operation. It is estimated that the economically recoverable reserves will be depleted over a period of 10 years. Extraction Ltd raised $1million of its

Solution

1. Gain on sale of Non Current Asset $400,000

This amount is taken from table prepared (above from journal entries) on Gain on sale of Non Current Assets where total gain is $800,000 and 50% gain is deferred i.e. $400,000 the Balance 50% gain of $400,000 belongs to gain of current year. The amount highlighted belongs to gain of current year.

2. Plant, Property & Equipment (PPE) – at fair value (9700-1000)

In the question in starting initial contribution of joint operation is given where initial cost of equipment is $1,000,000 which is included in joint venture agreement value. This is incurred in year 2009 therefore this $1,000,000 is deducted from $9,700,000 to arrive at fair value of PPE.

3. In Journal Entries for the year ended 30 September,2011

All the figures of this entry are taken from the statement of disaggregation of joint operations asset and liabilities at prepared end prepared above this entry. Figures of second column Extraction limited 50% interest are considered.

4.Interest in joint operation $1,400,000

This is the 50% of $2,800,000 (which is additional cash contribution from Joint operators in year 2011) comes to $1,400,000

5. COP Administration – $200,000

It is assumed that cost of administration is not deferred. Whole cost is of 200,000 is considered.

6. COP- Depreciation on PPE

It is calculated at 15% on Equipment at cost plus PPE (400,000+4,725,000= 5,125,000*15%= 768,750)

COP- Amortisation

It is calculated at 15% on deferred exploration and evaluation (200,000*15%= 30,000)

Note: These figures taken from journal entry passed on 30/09/2011

7. COGS – This is the 90% value of cost of production of 1,649,000(rounded off to nearest ‘000).

Inventories- Finished Goods - This is the 10% value of cost of production of 1,649,000(rounded off to nearest ‘000).

8.Cash/Trade Receivables – in the question it is given that 90% of its share has been sold for 2.5 million

9. PPE at Fair Value

In the question in starting initial contribution of joint operation is given where initial cost of equipment is $1,000,000 which is included in joint venture agreement value. This is incurred in year 2009 therefore this $1,000,000 is deducted from $10,450,000 to arrive at fair value of PPE.

10.Record Depreciation and amortisation

This is the working note for calculation of Depreciation already explained in Point No. 6