Reference no: EM132573547

Point 1: Jessica Resources Ltd explored three different areas (Sydney, Melbourne and Brisbane) of interest and spent $200?,000 in each during the year ended 30 June 2018. The results of exploration and evaluation (E&E) activities suggested that Areas Sydney and Melbourne may contain mineral reserves, so the company acquired leases over these two areas. The leases cost $100,?000 and $200,?000 respectively. Area Brisbane was immediately abandoned as there was not much hope for any mineral reserve in this area.

Point 2: During the year ended 30 June 2019, Jessica Resources Ltd commenced a drilling program to evaluate Sydney and Melbourne Areas. Eight exploratory wells were drilled, five in Sydney Area and two in Melbourne Area at a cost of $100,?000 each. The five wells drilled in Sydney Area did not result in any mineral resource findings (i.e., they were dry holes). The two wells drilled in Melbourne Area indicated that the company had discovered economically recoverable reserves. Sydney Area was abandoned, and after incurring costs of $50,000 to confirm the technical feasibility and commercial viability of extracting the mineral resources, development of Melbourne Area commenced.

Point 3: During the year ended 30 June 2020, to evaluate the area of interest further, three more wells were drilled in Melbourne Area. Of these, two were dry. Each well costs $150?,000. The successful wells in Melbourne Area were developed for a total cost of $300?,000. Expenditure on additional plant and equipment related to development was $325?,000.

REQUIRED

Question 1: Determine what amounts would be recognised as an expense (in the profit or loss) versus capitalised as an asset, in relation to each area of interest for each financial year assuming Jessica Resources Ltd capitalises successful E&E costs on an area of interest basis (i.e., expenses dry holes)