Question

Which of the following is correct for the impairment of proved oil and gas properties under the SE method? Group of answer choices

A. A temporary decline in the price of oil is sufficient to require testing for impairment.

B. A hostile action by the government of a country in which the company is operating would likely indicate the need to test for impairment of those assets.

C. The company compares the carrying value of the proved property to its discounted future cash flows to determine whether it is impaired.

D. The carrying value of an asset that has been written down by recognizing an impairment may later be increased if the fair value increases.

Answer 1

Answer is option B - A hostile action by the government of a country in which the company is operating would likely indicate the need to test for impairment of those assets.

Explanation :

Temporary decline in the price is not an indication for impairment therefore option A is incorrect.

The oil & gas company that applies the SE (Successful efforts method) will test an asset group for impairment by performing cash flow recoverability test by comparing the asset groups undiscounted cashflows , but in option they had given, therefore option C is incorrect.

If the fair value of an asset is less than the carrying value of an asset then the impairment is recognized for the difference of carrying value over and above the fair value of an asset. Eventhough fair value increases  more than carying value subsequently impairment should not be reversed. Therefore option D also incorrect.