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1995 ANNUAL REPORT |
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Notes to Consolidated Financial Statements
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1995 ANNUAL REPORT |
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Notes to Consolidated Financial Statements
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2. Change in Accounting Principle
In the fourth quarter of 1994, the Company changed its revenue recognition policy for earned interests, effective January 1, 1994. Under the Company's current method of accounting for earned interests, such amounts will not be recognized as income, thereby reducing the Company's investment in oil and gas property. This change was made as the result of a transition in the Company's current business activities and changes in the oil and gas limited partnership syndication markets. The Company feels the change in policy results in more comparable financial statements in relation to its current business focus and in comparison to its current peers and competitors in the oil and gas exploration and production industry.
The effect of the change was to increase 1994 income before cumulative effect of change in accounting principle by approximately $1,047,000 or $.16 per share. This increase was a result of the decrease in current year depletion expense more than offsetting the decrease in revenues as a result of not recognizing earned interests. The cumulative effect of this change in accounting principle resulted in a downward adjustment to earnings of $16,772,698 or $2.52 per share (after reduction for income taxes of $8,640,481), to retroactively apply the new method, thereby reducing net income in 1994. See Note 9 to the Company's financial statements for the effect this change had on oil and gas properties and accumulated depreciation, depletion, and amortization. The pro forma amounts shown on the income statement have been adjusted for the effect of retroactive application, had the new method been in effect during the periods presented.
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