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Hi – looking to bounce this off someone please…
“From October 2014, Gasnature had undertaken exploratory drilling to find gas and up to 31 August 2015 costs of $5 million had been incurred. At 31 August 2015, the results to date indicated that it was probable that there were sufficient economic benefits to carry on drilling and there were no indicators of impairment. During September 2015, additional drilling costs of $2 million were incurred and there was significant evidence that no commercial deposits existed and the drilling was abandoned.”
The model answer for this question says this is a non-adjusting event – I don’t get this. Surely the outcome of the additional exploration in Sept was indicative of a condition which actually existed *prior* to the reporting date, that condition being that there were actually never any commercial gas deposits at that site, and so you would write off the $5m? If this isn’t an adjusting event, I can’t work out what *would* be in this scenario…?!
Thanks in anticipation of any light you can shed…
Lynne
Hi,
The subsequent activity had not occurred at the reporting date, so the condition did not exist at the point in time. Evidence at that date also indicated that there was sufficient economic benefits to be had.
If the drilling costs had all been incurred up to the reporting date and we were just waiting for the results that we then received in September then it would be an adjusting event.
The key is that the subsequent drilling did not exist at the reporting date, it is something that happened after the reporting date.
Hope that helps clear up any confusion.
Thanks
Thanks chris keeping it real and simple. Capiche
Also in exam if not mention in question asking treatment for specific y/e..ie question is just asking treatment. Should we also provide solution for following year f/s as is the case of the model answer? I’d probably drop at the IAS 10 and not mention the expense in following year@aarina said:
Thanks chris keeping it real and simple. Capiche
Also in exam if not mention in question asking treatment for specific y/e..ie question is just asking treatment. Should we also provide solution for following year f/s as is the case of the model answer? I’d probably drop at the IAS 10 and not mention the expense in following yearI try my best ?
Focus on the treatment in this year, including any IAS 10 impact but don’t worry about what then happens in the future unless it is made clear that it is necessary in the question. So your understanding is correct.
Thanks
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