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Q62 Burley (12/09)
B has purchased a transferable interest in an oil exploration license.Initial surveys for exploration indicate that there are substantial oil deposits present but further surveys will berequired to establish the nature n extent of deposits.B has to decide whether its extraction is commercially viable.Past experience has shown that the license can increase substantially in value if further info becomes available as to the viability of the oil extraction.B wishes to capitalise the cost of license but is it in compliance with IFRS?
Sir pls help
I’ve surely answered this earlier today on a different thread. Are you posting your questions more than once on different threads?
Research and development costs MUST be capitalised if the criteria from the IAS are met.
But the criteria prevent the capitalisation of research costs – so only development expenditure is capitalisable.
One of the criteria for the capitalisation of development expenditure is that the development must be of a clearly defined project and the directors must have determined that that project is financially viable
Your own post says ” further surveys will berequired to establish the nature n extent of deposits.B has to decide whether its extraction is commercially viable”
Two matters arise here – firstly the research phase has not yet been completed so no capitalisation yet.
Second, the post actually says we have not yet decided on commercial viability
So, on two grounds the current expenditure is not capitalisable.
The license? How can you capitalise (in the light of the above reply) when the license will gain in value only on the occurrence of some substantially uncertain future event.
Thats exactly what i was wondering but in the bpp kit answer theyve said that it will be capitalised with any increase/dec from the future occuring incrasing/dec the value of the development exp.?
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