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:

Salvage Value

The estimated residual value of an asset at the end of its useful life, after accounting for depreciation or amortization.

Depreciation Expense

The allocated amount of an asset's cost over its useful life, used to account for declines in value over time.

Real Estate

Property consisting of land or buildings, including the natural resources and air space above the land.

Appraised

The process of determining the estimated market value of an asset, often performed by a professional appraiser.