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Question 1 Extracto Ltd commences operations on 1 January 2007, During 2007 Extracto Ltd explores three areas and incurs the following costs :...

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Question 1 Extracto Ltd commences operations on 1 January 2007, During 2007 Extracto Ltd explores three areas and incurs the following costs : Exploration and evaluation expenditure ($m) Good 23 Bad 16 Indifferent 25 In 2008 oil is discovered at Good Site . Bad Site is abandoned . Indifferent Site has not yet reached a stage that permits a reasonable assessment of the existence or otherwise of economically recoverable reserves, and active and significant operations in the area of interest are continuing. In relation to the exploration and evaluation expenditures incurred at Good Site and Indifferent Site, 80 per cent of the expenditures relate to property, plant and equipment, and the balance relates to intangible assets . In 2008 development costs of $27 million are incurred at Good Site to be written off on a production basis . $20 million of this expenditure relates to property, plant and equipment, and the balance relates to intangible assets . Good Site is estimated to have 15 000 000 barrels . The current sale price is $30 per barrel . Three million barrels are extracted at a production cost of $4 million and 1 .9 million barrels are sold. REQUIRED Provide the necessary journal entries using : a). the area-of interest method b). the full-cost method Question 2 Ling Ltd and Morwong Ltd are small family-owned companies engaged in vegetable growing and distribution. The Spencer family owns shares in Morwong Ltd and the Rokocoko family own the shares in Ling Ltd. The head of the Spencer family wishes to retire but his two sons are not interested in carrying on the family business. Accordingly, on 1 st July 2011, Ling Ltd is to take over the operations of Morwong Ltd, which will then liquidate. Ling Ltd is asset- rich but has limited overdraft facilities so the following arrangement has been made. Ling Ltd is to acquire all of the assets, except cash, delivery trucks and motor vehicles, of Morwong Ltd and will assume all of the liabilities except accounts payable. In return, Ling
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Ltd is to give the shareholders of Morwong Ltd a block of vacant land, two delivery vehicles and sufficient additional cash to enable the company to pay off the accounts payable and the liquidation costs of $1500. The land and vehicles had the following value at 30 June 2011. Carrying amount Fair value Freehold land $50 000 $120 00 Delivery trucks $30 000 $28 000 On the liquidation of Morwong Ltd, Mr Spencer is to receive the land and the motor vehicles and his two sons are to receive the delivery trucks. The statements of financial position of the two companies as at 30 June 2011 were as follows. Ling Ltd Morwong Ltd
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