The Humpty Doo Rare Earths Mining Company started mining operations on 1 July 2019. In the year to the 30th June 2020 three areas were explored, Europium, Gadolinium, and Terbium. The following costs were incurred:
|
Exploration and evaluation costs |
Exploration and evaluation costs |
Total site costs |
|
|
|
Property, plant and equipment |
Intangibles assets |
|
|
$m |
$m |
$m |
|
|
Europium |
9 |
18 |
27 |
|
Gadolinium |
18 |
12 |
30 |
|
Terbium |
9 |
21 |
30 |
|
36 |
51 |
87 |
Rare earths were discovered at Europium on 17th January 2020. In April 2020 after a review of the prospects for the Gadolinium site it was decided to abandon operations there. Exploration was still a work in progress at the Terbium site, but no decision had been made about the commercial potential of that site. Development of the Europium site had continued during the year and at 30th June 2020 $36 million had been incurred. These costs are to be written off on a production basis.
This cost relates to the construction of plant and equipment. It is estimated that there are 150,000 tones of rare earth which has a current sale price of $3,500 per tone. By the 30th June 2020 15,000 tones had been extracted at a production cost of $6 million of which 12,000 tones were sold.
Required
Record this first year’s transactions by journal entry using the area of interest method.
