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Under the entire quarter method of calculating DD&A in a quarter with a reserve revision, 1)...

Under the entire quarter method of calculating DD&A in a quarter with a reserve revision,

1) what is the impact to net income in a year with upward revision in the reserves estimate?

2) discuss the impact of net income in future years assuming no additional revisions.

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Answer #1

DD&A means Depreciation, Depletion & Amortisation which means decrease in the value of Assets from Carrying value of Balance sheet.

DD&A is calculated based on Accounting estimation. Every years estimation needs to evaluated and necessary effect on prospective basis needs to pass in books of accounts.

Increase in Reserve means increase in DD&A and Decrease in reserve means decrease in DD&A.

1 Ans : If upward revision in the reserve estimated than net income of the year will decrease by passing expenses entry of DD&A in SOPL.

2. Ans : DD&A is allocation of expenses in usefull life of the assets. In future years we will pass expenses entry of DD&A in SOPL and crease reserve for the assets which reduces the carrying value of the assets.

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