Successful Efforts and Full Cost methods Essay

SE and Full Cost methods:
Although virtually all mineral producing enterprises use historical cost accounting to account for their preproduction activities, this does not mean that all enterprises follow the same accounting concept. Several approaches to determining the capitalized cost of an asset related to the mineral reserves are used, yielding significantly different result. The two commonly used approaches are SE method and the FC method.
However, the FC and the SE method have been applied differently from entity from entity to entity. This is because of the absence of the detailed accounting standards- both IASC and national. Comparability which is one of the basic characteristics of the financial statements cannot be done in regard to these companies.
The difference between these two historical cost concept- SE method and the FC method is primarily on whether to capitalize or to expense the preproduction cost.
i. The uncertainty of relation between the specific cost and the particular mineral reserve to treat the cost as an asset. ii. The different cost center which exist in accumulating the cost and the use of the particular cost center. iii. The cost to be capitalized in each phase of activity. iv. How to depreciate the capitalized cost.
v. How to measure impairment of the capitalized cost.

Two Historic cost of accounting as defined in question:
1. Successful Efforts Accounting.
2. Full Cost Accounting.
The primary differences between the two historic concepts are whether the cost is capitalized or charged as an expense. But at the end everything is charged to the I/E which means the primary difference is between the timing for the payment.
Basic differences between the two cost concepts is either capitalizing or expensing those cost in an upstream.
The other differences between these concepts is cost center over which the cost may be allocated. The cost center under the SE effort method can be lease, field or reservoir. The cost center under the Fc accounting will be the country wise.
Thus from the above reason, In the SE method of accounting as the cost center are small. So, only the exploratory drilling cost that are successful are capitalized. However, as the cost center in the FC accounting will be big such as country so, unsuccessful drilling cost can be capitalized. The FC method worked on the assumption that there is no known way to avoid unsuccessful cost in searching oil and gas
1. Successful Effort Accounting
This is used by most of the large petroleum enterprises and many small ones and by some mining enterprises.
The cost that lead to finding, acquiring, developing mineral reserve are capitalized, cost whose outcome may be unknown will either be capitalized or treated as an expense.
The number of different approached to the successful effort method has been developed so there is not the single one concrete method of accounting.

Under Successful effort method, the direct relationship is required between the well drilled asn the oil discovered. So, the unsuccessful exploratory cost that does not result in an asset with the economic benefit will be expensed. Only the

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