ACC3120 Week 11 Extractive Industries
ACC3120 Advanced financial accounting
Week 11 Tutorial: Extractive Industries
1 HPHAH, chapter 20, question 1
Outline the five phases of a company’s operations in the extractive industries.
Answer:
It has been suggested that there are five identifiable phases in the discovery and recovery of minerals, oil and natural gas. Four of these phases are “pre-production” phases, which means that they occur before production begins.
The pre-production phases are exploration, evaluation, development and construction.
The exploration phase covers the process of finding the deposit. It includes the geological, geophysical and geochemical studies made over wide areas to obtain information and the acquisition of exploration rights in the most promising areas.
Evaluation is work undertaken to determine whether the prospect is commercially viable. It includes evaluation of the extent and quality of the deposit, and a consideration of the technical feasibility of extracting and selling it economically.
Development involves the establishment of access roads, drilling wells, driving shafts, the removal of overburden, and the supply of water and power.
Construction is a separate phase in which facilities are constructed for the extraction, treatment and transportation of product from the production areas.
The fifth phase is production. This covers extraction and processing before sale. The costs of production also include the amortisation of any capitalised pre-production costs.
2 HPHAH, chapter 20, question 2a
(1) What is the main accounting issue for entities involved in the extractive industries?
(2) Is there an inconsistency between the treatment of preproduction costs and research expenditure?
Answer:
(1) The main issue is how to account for the significant costs incurred during both the pre-production and production phases require. Should the costs be recognised as expenses or as an asset? What criteria should be used in answering this question? Differences in
Week 11 Tutorial: Extractive Industries
1 HPHAH, chapter 20, question 1
Outline the five phases of a company’s operations in the extractive industries.
Answer:
It has been suggested that there are five identifiable phases in the discovery and recovery of minerals, oil and natural gas. Four of these phases are “pre-production” phases, which means that they occur before production begins.
The pre-production phases are exploration, evaluation, development and construction.
The exploration phase covers the process of finding the deposit. It includes the geological, geophysical and geochemical studies made over wide areas to obtain information and the acquisition of exploration rights in the most promising areas.
Evaluation is work undertaken to determine whether the prospect is commercially viable. It includes evaluation of the extent and quality of the deposit, and a consideration of the technical feasibility of extracting and selling it economically.
Development involves the establishment of access roads, drilling wells, driving shafts, the removal of overburden, and the supply of water and power.
Construction is a separate phase in which facilities are constructed for the extraction, treatment and transportation of product from the production areas.
The fifth phase is production. This covers extraction and processing before sale. The costs of production also include the amortisation of any capitalised pre-production costs.
2 HPHAH, chapter 20, question 2a
(1) What is the main accounting issue for entities involved in the extractive industries?
(2) Is there an inconsistency between the treatment of preproduction costs and research expenditure?
Answer:
(1) The main issue is how to account for the significant costs incurred during both the pre-production and production phases require. Should the costs be recognised as expenses or as an asset? What criteria should be used in answering this question? Differences in