Costs That Have Been Carried Forward for a Specific Area

question 11

Multiple Choice

Costs that have been carried forward for a specific area of interest are to be amortised against revenue earned during the production phase.How is the amortisation of the costs to be calculated?

• A) Any generally accepted amortisation method may be used except for the inverse-of-the-sum-of-the-years'-digits method.
• B) The costs should be amortised in proportion to the expected revenue stream, so that a higher proportion of costs are matched against higher revenue streams, especially where they occur as a result of greater quality product in the early years of production.
• C) The costs should be amortised straight-line over a period of not greater than 20 years.
• D) The costs should be allocated over the life of the economically recoverable reserve in terms of production output or in terms of time in circumstances such as where there is a fixed period of tenure or the limiting factor is the length of the mining right.
• E) None of the given answers.

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Definitions:

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