On 1 July 2012 Brumbles Ltd Commenced an Operation to Extract

question 74

Multiple Choice

On 1 July 2012 Brumbles Ltd commenced an operation to extract iron ore from two sites believed to have potential in northern Australia.During the financial period ended 30 June 2013 the following costs were incurred: $$\begin{array} { | l | r | r | r | } \hline \text { Site } & \text { Acquisition costs } ( \$ \mathrm {~m} ) & \text { Exploration and evaluation costs } ( \mathrm { Sm } ) & \text { Total(\$m) } \\\hline \text { Western } & 9 & 20 & 29 \\\hline \text { Eastern } & \underline{5} & \underline{15} & \underline{20} \\\hline & \underline{14} & \underline{35} & \underline{49} \\\hline\end{array}$$ The eastern site is found not to be economically viable and is abandoned in the second half of 2013.Development costs of $10 million are incurred at the western site.The reserves at this site are estimated to be 90 000 tonnes.The market price is currently $700 per tonne.In the financial year ended 30 June 2014,10 000 tonnes are extracted with associated production costs of $1 million and 8000 tonnes are sold at the market price.There are no effective limits on the time over which Brumbles Ltd may extract the ore.What are the journal entries to record the relevant transactions and events for 2013 and 2014 using the method required by AASB 1022 (round to the nearest $10 000) ?

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Definitions:

Mechanic's Lien

A legal claim against a property by a contractor or repair person for unpaid labor or materials.

Materialman's Lien

A legal claim against a property by a contractor, supplier, or worker for unpaid labor or materials provided for improving the property.

Accommodation Surety

is a guarantor who agrees to be responsible for another's debt or obligation as a favor, without receiving any benefit.

Compensated Surety

A compensated surety refers to a person or entity that is paid to guarantee the performance of an obligation by another party.