Question

Please explain over and under lift in oil and gas accounting in detail.

Answer 1

Overlift represents an obligation to transfer future economic benefit (by foregoing the right to receive equivalent future production), and therefore constitutes a liability under FRS 5

Underlift represents a right to future economic benefit (through entitlement to receive equivalent future production) which constitutes an asset under FRS 5.

If the Over and Underlift balances are material , then it is reflected by adjusting cost of sales and working capital balances.