1. alsarhani yahya1 Petroleum Accounting CH (3)

2. alsarhani yahya2 Method to treatment the development fields expenses 1 – all the cost for work in process (drilling - buildings – other expenses..) close in each well as the following entry: well (1) Dr well (2) Dr well (3) Dr work in process- drilling Cr work in process- drilling equipment Cr

3. alsarhani yahya3  2 – To record the costs of the wells are as the following: A) The cost of non-productive wells and its current expenses so it is closed in income statement The entry follows: Dr Income statement Cr well (1) dry non-productive wells Cr well (...)

4. alsarhani yahya4 B) The cost of productive wells is the capital expenses and its appear in the balance sheet, which as the following: Dr Producing wells Cr well (1) productive wells Cr well (...)

5. alsarhani yahya5  Example 1 According to the previous example,assuming that the well (3) were dry. Required prepare the journal entries:  Solution 1 - The closing of work in process well (1) 385,000 well (2) 250,000 well (3) 360,000 work in process– drilling 995,000

6. alsarhani yahya6  2 - The cost of dry non-productive wells: Income statemet 360,000  well (3) 360,000

7. alsarhani yahya7 3- The cost of producing wells: wells (1), well (2) production wells 635,000 well (1) 385,000 well (2) 250,000 

8. alsarhani yahya8 The Depletion  It is means the decrease of the value of asset Such as miners and oil field, the result of the extraction part of the origin or for other reasons Require the distribution of normal production costs on the productive life of the asset declining (The amount of Reserve expected to extract). Note :  The Depletion used for intangible assets.  The Depreciation used for tangible assets.

9. alsarhani yahya9  Production costs are: 1.The cost of the contract 2.The cost of drilling and preparation 3.The cost of equipment will have depreciation expenses not deplation  The Depletion rate : = Cost of production (cost of the contract + the cost of drilling and development) /The amount of the reserve is extracted in the beginning of the year  Depletion = Depletion rate × amount extracted during the year 

10. alsarhani yahya10  Methods of calculating the Depletion:  1 - First method: Used in the case of the field was fully developed. The sense that the cost of the contract and the costs of drilling, including the reserve might be expected from the field. The rate of depletion of the cost of the field = the cost of field / Reserve

11. alsarhani yahya11  Example Applying the first method (the area is fully developed) in the absence of the Accumulated of deplation. The oil reserves in the first year of production (c) 1980 by 2400,000 barrels, a production of 150,000 barrels a year, as the cost of the contract, 600,000 R.O, and other production costs (the cost of drilling and development wells) 300, 000 R.O

12. alsarhani yahya12  Required Determine the rate of depletion and depletion expenses and prepare the necessary journal entries?  1 - The rate of depletion of the contract cost = cost of the contract / Reserve is expected in the first year = 600,000/2400,000 =,025 R.O / barrel.  2 - The rate of depletion of the cost of drilling = drilling cost / Reserve is expected in the first year = 300,000/2,400,000 =,125 R.O / barrel.

13. alsarhani yahya13  3 – Depletion expenses = depletion rate × reserves during the year  depletion expenses of the contract =,025 × 150,000 = 3750  depletion expenses of the drilling =,125× 150,000 = 18750 The total of depletion expenses : =3750 + 18750 = 22500  Or 1 –The depletion rate of the cost of production = cost of production (the cost of the contract + the cost of drilling) Reserve is expected in the first year = 600,000 + 300,000/2,400,000 =,15 R.O / barrel.

14. alsarhani yahya14  2 - Depletion expenses = depletion the cost of product × reserves mined during the year installment force =,15 × 150,000 = 22500  Journal entries: installment or Operation and production cost 22500 Accumulated empty wells 22500  Profit &loss 22500 installment or Operation and production cost 22500

15. alsarhani yahya15  Example 3 Applying the first method (the area is fully developed) in the case of a compound into force. Assuming that found at the end of next year 1981 in the previous example the estimated reserves will be 3,000,000 barrels, and the amount extracted from the contract during 1981 was 375,000 barrels, and the accumulated of depletion 22500, and 60,000 cost of the contract, the cost of drilling, preparation 300,000 R.O.

16. alsarhani yahya16  Required Determine the rate of depletion and depletion expenses and prepare the necessary journal entries?  Solution  The rate of depletion of the cost of production = cost of production (the cost of the contract + the cost of drilling) – accumulated depletion/ Reserve is expected in the first year +amount of reserve extracted

17. alsarhani yahya17 1 - The rate of depletion of the cost of production = cost of production (the cost of the contract + the cost of drilling) – Accumulated / Reserve is expected at the end of year+ the amount of reserve extracted during the year = 60,000 + 300,000 – 22,500 /300,000+ 375,000  =,1Real / barrel. 2 - The depletion expenses = rate of depletion × reserve extracted during the year depletion expenses =,1 × 375,000 = 37,500

18. alsarhani yahya18  Journal entries: depletion expenses 37,500 Accumulated depletion producing wells 37,500 Income statement 37,500 depletion expenses 37,500

19. alsarhani yahya19  2 - The second method: Used in the case of a partial development of the field.  The rate depletion for the cost of contract in respect of all areas, whether productive or still under development Therefore, the rate depletion the cost contract = The cost of the contract / Amount (the reserve) is extracted in the first year of producing wells + reserve expected

20. alsarhani yahya20  The cost of drilling, used just the productive area  So the rate of depletion of the cost of drilling and preparation = The cost of drilling and preparation / Reserve might be expected from the first year.

21. alsarhani yahya21 EXAMPLE  1-The oil reserves in the first year of production 680,000 barrels, a production of 250,000 barrels a year, as the cost of the contract 60,000 R.O, and other production costs (the cost of drilling and development wells) 300, 000 R.O  2- Assuming that found at the end of next year in the previous example the estimated reserves will be 5,000,000 barrels, and the amount extracted from the contract during215,000 barrels, and the Accumulated depletion 18500, and 80,000 cost of the contract, the cost of drilling, preparation 250,000 R.O. Required Determine the rate of depletion and depletion expenses and prepare the necessary journal entries?

22. alsarhani yahya22 REVIEW  If (A )petroleum company has got Obtained a preliminary license for oil exploration in the area of 600 KM, when accessing the company paid a license fee to the Government 9,000 R.O.  What are the probabilities? Estimated that if the accounting found that the production area = 300 KM and the other not product area and the company will removal  Prepare all journal entries?

23. alsarhani yahya23  Started a company to prepare the field of oil drilled three wells during the fiscal year amounted to expenses as follows:  500,000 bring the drill expenses.  400,000 removal and installation rig.  20,000 material going out inventory (well 1, have half and the remaining wells for others equally).  120,000 purchased on the account (the well belonging the first and second equal).

24. alsarhani yahya24  60,0000 wages of workers digging.  30,000 bonuses to the staff of the Department.  10,000 administration expenses  Note that the well depth of 46,000 feet first, second and third 25,000 feet 19,000 feet

25. alsarhani yahya25  Required: 1 – The journal entries. 2 – Ledger account for work under way - digging 3 - Ledger account accounts for the wells (1), (2), (3).  Note that: ALL expenses distributed between wells by equally,expect the salary, bonus, and an administration expenses