(a) Alpha company, a full cost company, has the following information available:
Acquisition costs of unproved properties, net of impairment $ 150,000
Nondrilling costs of unproved properties - direct 200,000
Abandoned property costs 50,000
Dry holes on unproved properties 300,000
Capitalized costs of proved properties 1,200,000
Costs of major development project (not included above) 400,000
Accumulated DD&A 350,000
PV of future gross revenues 2,050,000
PV of future related costs 700,000
Lower of cost or market of unproved properties 275,000
Apply the full cost ceiling test assuming that all possible costs are excluded from the amortization base (ignore income taxes).
(b) Compare the full cost ceiling test to the impairment rules for successful efforts companies.
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