Assignment On Oil and Gas Accounting

Running head: ACC 3307 OIL AND GAS ACCOUNTING
ACC 3307 Oil and Gas Accounting
Name of the Student:
Name of the University:
Authors Note:

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ACC 3307 OIL AND GAS ACCOUNTING
Contents
Part 1:...............................................................................................................................................2
Part 2:.............................................................................................................................................11

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ACC 3307 OIL AND GAS ACCOUNTING
Part 1:
Journal entries in the books of Cowboy Exploration & Production Company Limited are
recorded in the table below.
Journal entries in the books of Cowboy Exploration & Production Company
Date Details Debit ($) Credit ($)
01-Jan-19 Lease A 100,000.
00
Bank 100,000.0
0
(Being land A acquired on lease)
01-Jan-19 Lease B 56,000.
00
Bank 56,000.0
0
(Being land B acquired on lease)
01-Jan-19 Lease C 36,000.
00

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ACC 3307 OIL AND GAS ACCOUNTING
Bank 36,000.0
0
(Being land C acquired on lease)
15-Jan-19 G & G expenses 130,000.
00
Bank 130,000.0
0
(Being geologist and survey cost incurred on land A, B
and C)
12-Mar-19 Lease A: 1,890,000.
00
Lease B 430,000.
00
Lease C 1,705,000.
00
Bank 4,025,000.00
(Being contractor fees paid)

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ACC 3307 OIL AND GAS ACCOUNTING
22-Mar-19 Rent of equipment 420,000.
00
Bank 420,000.0
0
(Being rent on equipment paid)
30-Mar-19 Drilling fluid 100,000.
00
Bank 100,000.0
0
(Being drilling fluid paid)
10-Apr-19 Fuel 54,000.
00
Bank 54,000.0
0
(Being fuel expenses paid)
15-Apr-19 Drill bits expenses 150,000.
00

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ACC 3307 OIL AND GAS ACCOUNTING
Bank 150,000.0
0
(Being drill bit expenses paid)
30-Apr-19 Cementing 78,500.
00
Bank 78,500.0
0
(Being cementing expenses paid)
01-Jun-19 Transportation 70,000.
00
Bank 70,000.0
0
(Being transportation expenses paid)
26-Jun-19 Production casting 131,000.
00
Bank 131,000.0
0

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ACC 3307 OIL AND GAS ACCOUNTING
(Being production casting expenses paid)
01-Aug-19 Tank Battery 705,000.
00
Bank 705,000.0
0
(Being tank battery purchased)
13-Sep-19 Flow line and Connection expenses 604,000.
00
Bank 604,000.0
0
(Being flow line and connections laid)
15-Sep-19 Pumping motors and accessories 180,000.
00
Bank 180,000.0
0
(Being pumping motor and accessories purchased)
28-Sep-19 Casting connection 372,000.

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ACC 3307 OIL AND GAS ACCOUNTING
00
Bank 372,000.0
0
(Being casing head completed)
04-Oct-19 Tubing 145,000.
00
Bank 145,000.0
0
(Being tubing completed)
18-Oct-19 Plant & Equipment 240,000.
00
Bank 240,000.0
0
(Being separating and treating equipment purchased)
21-Oct-19 Plant & Equipment 210,000.
00
Bank 210,000.0

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ACC 3307 OIL AND GAS ACCOUNTING
0
(Being measuring equipment purchased)
30-Oct-19 Testing expenses 215,000.
00
Bank 215,000.0
0
(Being testing and acidizing expenses incurred and paid)
31-Dec-19 Lifting cost 65,000.
00
Bank 65,000.0
0
(Being lifting cost incurred and paid)
31-Dec-19 Bank 2,094,750.
00
Sales 2,094,750.00
(Being 28,500 bbl. sold @ $1.75 per gallon)

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ACC 3307 OIL AND GAS ACCOUNTING
31-Dec-19 Impairment of asset 486,000.
00
Lease B 486,000.0
0
(Being lease B 100% impaired)
Note:
The following assumptions have been made in recording the journal entries:
I. Only the cost of acquisition of land and contractor’s fees have been capitalized under
different leases, i.e. lease A, B and C. All other spending have been expensed in the
year of payment.
II. 1 bbl. Equals to 42 gallon and accordingly, the calculations of sales have been made.
III. The expenses incurred in re4spect of lease B have been considered to calculate the
cost of production. However, a different approach could have been used to calculate
the cost incurred on lease B and the entire cost could have been debited to profit and
loss account instead of adding to the cost of production. In that case the gross profit
would have been higher however, the resultant net profit / (loss) would not have
changed.
IV. No amortization for lease A and C have been made in the books of account as no
specific information in this regard has been provided.
V. Lease B has been 100% amortized and debited against profit and loss of the company.

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ACC 3307 OIL AND GAS ACCOUNTING
VI. No closing journal entries and adjustment entries have been passed in the books of
accounts of the company thus, only general journal entries have been recorded.
Part 2:
Income statement of Cowboy Exploration & Production Company is presented below:
Income statement of Cowboy Exploration and Production Company
Particulars Amount ($) Amount ($)
Revenue from sale of oil (28500 x 42 x 1.75) 2,094,750.00
Less: Cost of production sold (Note I) 2,346,025.00
Gross profit / (gross loss) (251,275.00)
Less: Other expenses
Lifting costs 65,000.00
Impairment of asset (lease B) 486,000.00
551,000.00
Net loss (802,275.00)
Thus, the gross loss of $251,275 would have changed in case the exploration costs of lease B
would have been segregated and not considered along with the cost of exploration in lease A and
C. However, the net loss of $802,275 would have remained same.

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ACC 3307 OIL AND GAS ACCOUNTING
Working notes:
Calculation of cost of production and cost of production sold are shown in the table below:
Note I:
Cost of production and cost of production sold
Particulars Amount ($) Amount ($)
G&G expenses 130,000.00
Rent on equipment 420,000.00
Drilling fluid 100,000.00
Fuel 54,000.00
Drill bits expenses 150,000.00
Cementing expenses 78,500.00
Transportation 70,000.00
Production casting costs 131,000.00
Flow lines and connection costs 604,000.00
Casting connection expenses 372,000.00
Tubing expenses 145,000.00
Testing expenses 215,000.00

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ACC 3307 OIL AND GAS ACCOUNTING
Total cost of production 2,469,500.00
Total production in units 30000 bbl.
Total units sold 28500 bbl.
Cost of production sold (2,469,500 x 28,500/30,000) 2,346,025.00