A continuing column which provides summaries of updates in the area of financial accounting. This issue's column includes: COPAS, State of Texas, AICPA Oil and Gas Audit Guide, Impact of Price Decline on Full Cost Ceiling.

Current Developments in Petroleum Accounting and Reporting. Hall, James D., Spring 1986, pp. 1‑2.

This section contains responses to specific questions raised by our readers: Accounting for Costs of Brine Disposal Wells, Geological and Geophysical Costs Related to Locating Well Drilling Site, Inclusion of Royalty Interests in Reserve Disclosures

The Accounting Forum. Spring 1986, pp. 3‑6.

Historically, oil and gas accounting literature has emphasized the expense side of joint interest operations, but little attention has been given to the Auditing of oil and gas revenues. Mr. Norman reviews certain audit procedures applicable to oil and condensate, to unprocessed natural gas, and to processed natural gas. This article covers volume determination and verification, production records, value determination, contractual records, and the examination of other documents and records.

Oil and Gas Revenue Auditing—an Operational Approach. Norman, Charles A., Spring 1986, pp. 7‑32.

Mr. Robinson examines typical audit procedures employed in conducting the customary audit well expenditures in joint interest operations. His discussion includes preliminary procedures, field procedures, common causes of audit exceptions, the audit report, and audit settlements.

Joint Interest Auditing: Typical Audit Procedures Used in Conducting an Expenditure Well Audit. Robinson, Dan H., Spring 1986, pp. 33‑46.

Mr. Cain analyzes the major differences between the Council of Petroleum Accountants Societies' 1984 Onshore Accounting Procedure and the 1974 Accounting Procedure. The corresponding paragraphs of each form are shown where a paragraph has been changed and the differences in wording are pointed out.

Overview of Revisions of COPAS-1984 Onshore Accounting Procedure for Joint Operations. Cain, Dan, Spring 1986, pp. 47‑94.

Professor Deakin focuses on the practical problem faced by oil and gas companies in determining income within a state for tax purposes when a corporation operates in more than one state. He analyzes the common methods for attributing income to a jurisdiction-allocation to situs, separate accounting and formula apportionment. Dr. Deakin then discusses the impact of alternative methods on tax liability and gives examples of tax-planning strategies.

Strategies in State Income Taxation. Deakin, Edward B., Spring 1986, pp. 95‑106.

Potentially one of the largest costs associated with oil and gas operations in the North Sea is the removal of platforms and facilities and the cleanup of the ocean bed when the reserves in a field have been produced. Professor Bentham analyzes the legal background of international laws governing removal and restoration, with special emphasis on the 1958 Convention on the Continental Shelf. He then discusses the requirements of Norway and the United Kingdom and concludes that there is a great deal of uncertainty about the requirements. Proposed legislation and tax impact are then examined.

The Abandonment of Offshore Installations in the North Sea. Bentham, R. W., Spring 1986, pp. 107‑118.

In 1984 the U.S. Supreme Court in Commissioner v. Engle, et ux, ruled against the Internal Revenue Service and held that percentage depletion maybe claimed on gross income from a property in a year in which no actual production occurs. Ms. Case and Mr. Rogers highlight the history of percentage depletion on lease bonuses and advance royalties and offer practical guidelines for implementing the Engle decision.

Percentage Depletion on Lease Bonuses and Advance Royalties: The Engle Decision. Case, Elizabeth A. and Rogers, Richard J., Spring 1986, pp. 119‑130.

Messrs. Mark and Robison discuss the web of complex rules that were enacted as part of the Bankruptcy Tax Act of 1980 and their impact on oil and gas companies that have debt restructuring under such circumstances the general rules for income recognition and basis adjustment under Title II of insolvency situations are explained. and the election to first reduce the basis of depreciable assets is analyzed. Then the authors discuss the rules for computing depreciation and recapture after bankruptcy occurs and give a comprehensive example illustrating the effects of different elections.

Bankruptcy and the Oil Industry: Basis and Beyond. Mark, Richard S. and Robison, Jack, Spring 1986, pp. 131‑146.

Based on data from previous studies of offshore oil and pas fields. Dr. Boynton examines the relative burden to offshore operations of petroleum firms that would result from alternative tax plans with and without (1)the immediate expensing of IDC and (2) the 10 percent investment tax credit. Marginal corporate rates of 46. 30. 35, and 30 percent are studied. Dr. Boynton concludes that firms with a real discount rate of more than 11.19 percent would benefit from a plan with a marginal rate of 46 percent. allowing an immediate write-off of IDC and a 10 percent ITC as opposed to a Plan with no immediate expensing of IDC, no ITC, and a 30 percent marginal rate if prices are $36 per barrel equivalent. If oil prices are $34 per barrel equivalent, the former plan would be preferred by companies with a discount rate greater than 5.81 percent.

The Impact on Offshore Petroleum Operations of Eliminating the IDC Deduction and the 10% ITC and of Reducing the Corporate Tax Rate. Boynton IV, Charles E., Spring 1986, pp. 147‑158.

Mr. Ihloff's article is a detailed analysis of the typical oil and gas lease. He examines the rule of capture, ownership theories of oil and gas in various states, and the nature of the mineral estate before analyzing lease terms. Implied covenants are discussed in some detail.

A Legal Analysis of the Oil and Gas Lease. Ihloff, Tim, Spring 1986, pp. 159‑182.