Notes to the Financial Statements

Year Ended 30 June 2017

All amounts are Australian Dollars

 

1       Statement of Accounting Policies

 

The principal accounting policies adopted in preparing the financial report of Mosman Oil and Gas Limited (or "the Company'') and Controlled Entities ("Consolidated entity" or "Group"), are stated to assist in a general understanding of the financial report.  These policies have been consistently applied to all the years presented, unless otherwise indicated.

 

Mosman Oil and Gas Limited is a Company limited by shares incorporated and domiciled in Australia.

 

 

(a)    Basis of Preparation

 

This general purpose financial report has been prepared in accordance with Australian Accounting Standards (including Australian Interpretations) adopted by the Australian Accounting Standards Board and the Corporations Act 2001. Compliance with Australian Accounting Standards ensures that the financial statements also comply with International Financial Reporting Standards.

 

The financial report has been prepared on the basis of historical costs and does not take into account changing money values or, except where stated, current valuations of non-current assets.

 

The financial report was authorised for issue by the Directors on 24 November 2017.

 

 

(b)    Principles of Consolidation and Equity Accounting

 

The consolidated financial statements incorporate the assets, liabilities and results of entities controlled by Mosman Oil and Gas Limited at the end of the reporting period.  A controlled entity is any entity over which Mosman Oil and Gas Limited has the ability and right to govern the financial and operating policies so as to obtain benefits from the entity's activities.

Where controlled entities have entered or left the Group during the year, the financial performance of those entities is included only for the period of the year that they were controlled.  Details of Controlled and Associated entities are contained in Notes 25 and 26 to the financial statements.

In preparing the consolidated financial statements, all inter-group balances and transactions between entities in the consolidated group have been eliminated in full on consolidation.

Under AASB 11 Joint Arrangements, investments in joint arrangements are classified as either joint operations or joint ventures. The classification depends on the contractual rights and obligations of each investor, rather than the legal structure of the joint arrangement. Mosman Oil and Gas Limited has a joint venture.

 

Joint ventures

 

Interests in joint ventures are accounted for using the equity method (see below), after initially being recognised at cost in the consolidated balance sheet.

 

Equity method

 

Under the equity method of accounting, the investments are initially recognised at cost and adjusted thereafter to recognise the group's share of the post-acquisition profits or losses of the investee in profit or loss, and the group's share of movements in other comprehensive income of the investee in other comprehensive income. Dividends received or receivable from associates and joint ventures are recognised as a reduction in the carrying amount of the investment.

 

When the group's share of losses in an equity-accounted investment equals or exceeds its interest in the entity, including any other unsecured long-term receivables, the group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the other entity.

 

Unrealised gains on transactions between the group and its associates and joint ventures are eliminated to the extent of the group's interest in these entities. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of equity accounted investees have been changed where necessary to ensure consistency with the policies adopted by the group.

 

The carrying amount of equity-accounted investments is tested for impairment in accordance with the policy described in note 1(p).

 

(c)    Use of Estimates and Judgements

 

The preparation of financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and reported amounts of assets and liabilities, income and expenses.  Actual results may differ from these estimates.  Estimates and underlying assumptions are reviewed on an ongoing basis.  Revisions to accounting estimates are recognised in the period in which the estimate is revised and in any future periods affected.

 

Critical Accounting Estimates and Judgements

 

Impairment of Exploration and Evaluation Assets

 

The ultimate recoupment of the value of exploration and evaluation assets, is dependent on the successful development and commercial exploitation, or alternatively, sale, of the exploration and evaluation assets.

 

Impairment tests are carried out when there are indicators of impairment in order to identify whether the asset carrying values exceed their recoverable amounts. There is significant estimation and judgement in determining the inputs and assumptions used in determining the recoverable amounts.

 

The key areas of judgement and estimation include:

 

·      Recent exploration and evaluation results and resource estimates;

·      Environmental issues that may impact on the underlying tenements;

·      Fundamental economic factors that have an impact on the operations and carrying values of assets and liabilities.

 

Taxation

 

Balances disclosed in the financial statements and the notes related to taxation, are based on the best estimates of directors and take into account the financial performance and position of the Group as they pertain to current income tax legislation, and the directors understanding thereof.  No adjustment has been made for pending or future taxation legislation.  The current tax position represents the best estimate, pending assessment by the tax authorities.

 

Exploration and Evaluation Assets

 

The accounting policy for exploration and evaluation expenditure results in expenditure being capitalised for an area of interest where it is considered likely to be recoverable by future exploitation or sale or where the activities have not reached a stage which permits a reasonable assessment of the existence of reserves. 

 

This policy requires management to make certain estimates as to future events and circumstances. Any such estimates and assumptions may change as new information becomes available.  If, after having capitalised the expenditure under the policy, a judgement is made that the recovery of the expenditure is unlikely, the relevant capitalised amount will be written off to profit and loss.

 

 

(d)    Income Tax

 

Current tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities.  The tax rates and tax laws used to compute the amounts are those that are enacted or substantively enacted at the balance sheet date.

 

Deferred income tax is provided on all temporary differences at the balance sheet date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes.

 

Deferred income tax liabilities are recognized for all taxable temporary differences.

 

Deferred income tax assets are recognized for all deductible temporary differences, carry-forward of unused tax assets and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences and the carry-forward of unused tax credits and unused tax losses can be utilized;

 

The carrying amount of deferred income tax assets is reviewed at each balance sheet date reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilized.

 

Unrecognized deferred income tax assets are reassessed at each balance sheet date and are recognized to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered.

 

Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realized or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the balance sheet date.

 

Income taxes relating to items recognized directly in equity are recognized in equity and not in the income statement.

 

Deferred tax assets and deferred tax liabilities are offset only if a legally enforceable right exists to set off current tax liabilities and the deferred tax assets and liabilities relate to the same taxable entity and the same taxation authority.

 

(e)    Goods and Services Tax

 

Revenues, expenses and assets are recognized net of the amount of GST except:

 

(i)   Where the GST incurred on a purchase of goods and services is not recoverable from the taxation authority, in which case the GST is recognized as part of the cost of acquisition of the asset, or as part of the expense item as applicable;

 

(ii)  Receivables and payables are stated with the amount of GST included;

 

(iii) The net amount of GST recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the Statement of Financial Position;

    

(iv) Cash flows are included in the Statement of Cash Flows on a gross basis and the GST component of cash flows arising from investing and financing activities, which is recoverable from, or payable to, the taxation authority, are classified as operating cash flows; and

 

(v)  Commitments and contingencies are disclosed net of the amount of GST recoverable from, or payable to, the taxation authority.

 

(f)     Property, Plant and Equipment

 

Plant and equipment are measured on the cost basis and therefore carried at cost less accumulated depreciation and any accumulated impairment.  In the event the carrying amount of plant and equipment is greater than the estimated recoverable amount, the carrying amount is written down immediately to the estimated recoverable amount and impairment losses are recognized either in profit or loss, or as a revaluation decrease if the impairment losses relate to a revalued asset.  A formal assessment of recoverable amount is made when impairment indicators are present (refer to Note 1(p) for details of impairment).

 

The carrying amount of plant and equipment is reviewed annually by directors to ensure it is not in excess of the recoverable amount from these assets. The recoverable amount is assessed on the basis of the expected net cash flows that will be received from the asset's employment and subsequent disposal. The expected net cash flows have been discounted to their present values in determining recoverable amounts.

 

(g)    Depreciation

 

The depreciable amount of all fixed assets is depreciated on a straight-line basis over the asset's useful life to the consolidated group commencing from the time the asset is held ready for use. Leasehold improvements are depreciated over the shorter of either the unexpired period of the lease or the estimated useful lives of the improvements.

 

(h)    Exploration and Evaluation Assets

 

Mineral exploration and evaluation expenditure incurred is accumulated in respect of each identifiable area of interest and is subject to impairment testing.  These costs are carried forward only if they relate to an area of interest for which rights of tenure are current and in respect of which:

 

Such costs are expected to be recouped through the successful development and exploitation of the area of interest, or alternatively by its sale; or

 

Exploration and/or evaluation activities in the area have not reached a stage which permits a reasonable assessment of the existence or otherwise of economically recoverable reserves and active or significant operations in, or in relation to, the area of interest are continuing.

 

In the event that an area of interest is abandoned accumulated costs carried forward are written off in the year in which that assessment is made.  A regular review is undertaken of each area of interest to determine the appropriateness of continuing to carry forward costs in relation to that area of interest.

 

Where a resource has been identified and where it is expected that future expenditures will be recovered by future exploitation or sale, the impairment of the exploration and evaluation is written back and transferred to development costs.  Once production commences, the accumulated costs for the relevant area of interest are amortized over the life of the area according to the rate of depletion of the economically recoverable reserves.

 

Costs of site restoration and rehabilitation are recognized when the Company has a present obligation, the future sacrifice of economic benefits is probable and the amount of the provision can be reliably estimated.

 

The amount recognized as a provision is the best estimate of the consideration required to settle the present obligation at the reporting date, taking into account the risks and uncertainties surrounding the obligation. Where a provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is the present value of those cash flows.

 

Exploration and evaluation assets are assessed for impairment if facts and circumstances suggest that the carrying amount exceeds the recoverable amount.

 

For the purpose of impairment testing, exploration and evaluation assets are allocated to cash-generating units to which the exploration activity relates. The cash generating unit shall not be larger than the area of interest.

 

(i)     Accounts Payable

 

These amounts represent liabilities for goods and services provided to the Group prior to the end of the financial year and which are unpaid.  The amounts are unsecured and are usually paid within 30 days of recognition.

 

(j)     Contributed Equity

 

Issued Capital

 

Incremental costs directly attributable to issue of ordinary shares and share options are recognised as a deduction from equity, net of any related income tax benefit.

 

(k)    Earnings Per Share

 

Basic earnings per share ("EPS") are calculated based upon the net loss divided by the weighted average number of shares.  Diluted EPS are calculated as the net loss divided by the weighted average number of shares and dilutive potential shares.

 

(l)     Share-Based Payment Transactions

 

The Group provides benefits to Directors KMP and consultants of the Group in the form of share-based payment transactions, whereby employees and consultants render services in exchange for shares or rights over shares ("Equity-settled transactions").

 

The value of equity settled securities is recognised, together with a corresponding increase in equity.

 

Where the Group acquires some form of interest in an exploration tenement or an exploration area of interest and the consideration comprises share-based payment transactions, the fair value of the assets acquired are measured at grant date.  The value is recognised within capitalised mineral exploration and evaluation expenditure, together with a corresponding increase in equity.

 

(m)   Comparative Figures

 

When required by Accounting Standards, comparative figures have been adjusted to conform to changes in presentation for the current financial year.

 

(n)    Financial Risk Management

 

The Board of Directors has overall responsibility for the establishment and oversight of the risk management framework, to identify and analyse the risks faced by the Group.  These risks include credit risk, liquidity risk and market risk from the use of financial instruments.  The Group has only limited use of financial instruments through its cash holdings being invested in short term interest bearing securities.  The Group has no debt, and working capital is maintained at its highest level possible and regularly reviewed by the full board.

 

(o)    Financial Instruments

 

  Recognition and Initial Measurement

 

Financial instruments, incorporating financial assets and financial liabilities, are recognized when the entity becomes a party to the contractual provisions of the instrument. Trade date accounting is adopted for financial assets that are delivered within timeframes established by marketplace convention.

 

Financial instruments are initially measured at fair value plus transactions costs where the instrument is not classified as a fair value through profit or loss. Transaction costs related to instruments classified as a fair value through profit or loss are expensed to profit or loss immediately. Financial instruments are classified and measured as set out below.

 

Derecognition

 

Financial assets are derecognized where the contractual rights to receipt of cash flows expires or the asset is transferred to another party whereby the entity is no longer has any significant continuing involvement in the risks and benefits associated with the asset. Financial liabilities are derecognized where the related obligations are either discharged, cancelled or expire. The difference between the carrying value of the financial liability extinguished or transferred to another party and the fair value of consideration paid, including the transfer of non-cash assets or liabilities assumed, is recognized in profit or loss.

 

Classification and Subsequent Measurement

 

(a)     Financial assets at fair value through profit or loss

 

Financial assets are classified at fair value through profit or loss when they are held for trading for the purpose of short term profit taking, where they are derivatives not held for hedging purposes, or designated as such to avoid an accounting mismatch or to enable performance evaluation where a Group of financial assets is managed by key management personnel on a fair value basis in accordance with a documented risk management or investment strategy. Realized and unrealized gains and losses arising from changes in fair value are included in profit or loss in the period in which they arise.

 

(b)     Loans and receivables

 

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market and are subsequently measured at amortized cost using the effective interest rate method.

 

(c)     Held-to-maturity investments

 

Held-to-maturity investments are non-derivative financial assets that have fixed maturities and fixed or determinable payments, and it is the Group's intention to hold these investments to maturity. They are subsequently measured at amortized cost using the effective interest rate method.

 

(d)     Available-for-sale financial assets

 

Available-for-sale financial assets are non-derivative financial assets that are either designated as such or that are not classified in any of the other categories. They comprise investments in the equity of other entities where there is neither a fixed maturity nor fixed or determinable payments.

 

(e)     Financial Liabilities

 

Non-derivative financial liabilities (excluding financial guarantees) are subsequently measured at amortized cost using the effective interest rate method.

 

(f)      Impairment

 

At each reporting date, the Group assesses whether there is objective evidence that a financial instrument has been impaired. In the case of available-for-sale financial instruments, a prolonged decline in the value of the instrument is considered to determine whether an impairment has arisen. Impairment losses are recognized in the income statement.

 

(p)    Impairment of Assets

 

At each reporting date, the Group reviews the carrying values of its tangible assets to determine whether there is any indication that those assets have been impaired. If such an indication exists, the recoverable amount of the asset, being the higher of the asset's fair value less costs to sell and value in use, is compared to the asset's carrying value. Any excess of the asset's carrying value over its recoverable amount is expensed to the income statement. Impairment testing is performed annually for goodwill and intangible assets with indefinite lives.

 

Where it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the cash-generating until to which the asset belongs.

 

(q)    Employee Entitlements

 

Liabilities for wages and salaries, annual leave and other current employee entitlements expected to be settled within 12 months of the reporting date are recognized in other payables in respect of employees' services up to the reporting date and are measured at the amounts expected to be paid when the liabilities are settled.  Liabilities for non-accumulating sick leave are recognized when the leave is taken and measured at the rates paid or payable.

 

Contributions to employee superannuation plans are charged as an expense as the contributions are paid or become payable.

 

(q)       Provisions

 

Provisions are recognized when the Group has a legal or constructive obligation, as a result of past events, for which it is probable that an outflow of economic benefits will results and that outlay can be reliably measured.

 

(r)       Cash and Cash Equivalents

 

Cash and cash equivalents include cash on hand, deposits held at call with banks, other short-term highly liquid investments with original maturities of 3 months or less, and bank overdrafts. Bank overdrafts are shown within short-term borrowings in current liabilities on the balance sheet.

 

 

(s)       Revenue and Other Income

 

Interest revenue is recognized using the effective interest rate method, which, for floating rate financial assets, is the rate inherent in the instrument.

 

 

(t)       Acquisition of Subsidiary Not Deemed a Business Combination

 

When an acquisition of assets does not constitute a business combination, the assets and liabilities are assigned a carrying amount based on their relative fair values in an asset purchase transaction and no deferred tax will arise in relation to the acquired assets and assumed liabilities as the initial exemption for deferred tax under AASB 12 applies. No goodwill will arise on the acquisition and transaction costs of the acquisition will be included in the capitalised cost of the asset.

 

 

(u)        New standards and interpretations

 

Account Standard and Interpretation

 

The Group has adopted all of the new, revised or amending Accounting Standards and Interpretations issued by the Australian Accounting Standards Board ('AASB') that are mandatory for the current reporting period. These changes do not materially impact on this financial report.

 

Any new, revised or amending Accounting Standards or Interpretations that are not yet mandatory have not been adopted early. Adoption would not materially impact on this financial report.

 

 

	Consolidated 2017	Consolidated      2016
	$	$
2     Corporate Costs
Accounting, Company Secretary and Audit fees	198,034	153,010
Director fees	120,000	120,000
Consulting fees	707,809	779,501
Legal and compliance fees	126,822	131,714
	1,152,665	1,184,225
3     Costs associated with projects
Costs incurred	417,687	1,555,284
Reimbursements	(136,925)	(261,989)
	280,762	1,293,295

  

4      Income Tax

No income tax is payable by the Group as it has incurred losses for income tax purposes for the year, therefore current tax, deferred tax and tax expense is $NIL (2016 - NIL).

(a) Numerical reconciliation of income tax expense to prima facie tax payable

 

		Consolidated 2017	Consolidated      2016
		$	$
Loss before tax		(9,186,307)	(4,894,765)
Income tax calculated at 27.5% (2016: 30%)		(2,526,234)	(1,468,429)
Tax effect of amounts which are deductible/non-deductible In calculating taxable income:
	JV share of profit	16,878	-
	Project abandonment costs	-	128,733
	Legal and consulting expenses	15,885	-
	Capital raising costs	-	86,788
	Impairment expense	2,079,964	442,311
	Upfront exploration expenditure claimed	(152,894)	(177,804)
	Other	(207,087)	(178,665)
Effects of unused tax losses and tax offsets not recognized as deferred tax assets		773,488	1,167,066
Income tax expense attributable to operating profit		NIL	NIL

   

(b) Tax Losses

                                                                                                                    

As at 30 June 2017 the Company had Australian tax losses of $6,804,870 (2016: $3,899,473). The benefit of deferred tax assets not brought to account will only be realized if:

 

·     Future assessable income is derived of a nature and of an amount sufficient to enable the benefit to be realized; and

·     The conditions for deductibility imposed by tax legislation continue to be complied with and no changes in tax legislation adversely affect the Company in realizing the benefit.

 

 

 

(c)     Unbooked Deferred Tax Assets and Liabilities

 

 

	Consolidated 2017	Consolidated      2016
	$	$

Unbooked deferred tax assets comprise:

 

Capital Raising Costs	256,270	486,874
Provisions/Accruals/Other	20,561	36,329
Tax losses available for offset against future taxable income	1,935,955	3,899,473
	2,212,786	4,922,676

 

 

5     Auditors Remuneration
Audit - Somes Cooke
Audit of the financial statements		-	7,000
Audit - Greenwich & Co Audit Pty Ltd
Audit of the financial statements		27,000	18,000
		27,000	25,000

 

 

6     Cash and Cash Equivalents
Cash at Bank		1,666,139	3,758,556

 

7     Trade and Other Receivables
Deposits		198,851	150,533
GST receivable		44,197	43,419
Other receivables		151,557	163
		394,605	194,115

 

 

8     Other assets
Prepayments		23,985	22,546
Accrued income		11,705	-
Share applications		-	423,549
		35,690	446,095

 

 

9     Other financial assets
Shares in a listed entity		288,288	7