Question

1. SECTION 8: OIL AND GAS OPERATIONS Statement 143 will have a major impact on accounting for asset retirement obligations related to oil and gas properties. T/F

2. Statement 143 amends Statement 19. T/F

3. The legal obligation for dismantlement, restoration, and abandonment costs generally will be incurred when a well is drilled or when a platform or other equipment is put in place. T/F

4. Enterprises with oil and gas operations outside the U.S. need not consider the specific asset retirement obligations in those foreign jurisdictions. T/F

5. In applying impairment tests, Statement 19 indicates that estimated future cash flows related to the liability for asset retirement obligations should be excluded from undiscounted cash flows used to test the asset for recoverability and the discounted cash flows used to estimate the asset ’s fair value. T/F

6. Capitalized asset retirement costs are excluded in the carrying amount of the related asset when tested for impairment. That guidance would apply to enterprises using the successful efforts method of accounting. T/F

7. Under the SEC ’s full cost accounting rules, no gain or loss is recognized on sales of oil and gas properties unless the related adjustments to capitalized costs as a result of the sale would significantly alter the relationship between capitalized costs and proved reserves for the cost center. T/F

Answer 1

ANS 1. :true

Ans2.: True

Ans3 : False

Ans 4.:True

Ans 5: False

Ans :true

Oil and Gas Properties—The Company follows the full cost accounting method to account for oil and natural gas properties, whereby costs incurred in the acquisition, exploration and development of oil and gas reserves are capitalized. Such costs include lease acquisition, geological and geophysical activities, rentals on nonproducing leases, drilling, completing and equipping of oil and gas wells and administrative costs directly attributable to those activities and asset retirement costs. Disposition of oil and gas properties are accounted for as a reduction of capitalized costs, with no gain or loss recognized unless such adjustment would significantly alter the relationship between capital costs and proved reserves of oil and gas, in which case the gain or loss is recognized to operations.