Final answer:
A company can choose between a full-cost approach and a successful-efforts approach to account for costs based on their accounting preferences and industry standards.
Step-by-step explanation:
A company can choose between either a full-cost approach or the successful-efforts approach to account for costs based on the accounting method they prefer to use. The full-cost approach includes all costs associated with exploration, development, and production, regardless of whether the project is successful or not. On the other hand, the successful-efforts approach only includes costs directly related to successful projects.
For example, if a company chooses the full-cost approach, they would capitalize all drilling and exploration costs, including unsuccessful ones. However, with the successful-efforts approach, only the costs associated with successful projects would be capitalized. The choice between these approaches depends on factors such as industry standards, regulations, and the company's preference for financial reporting.
In summary, a company can choose between the full-cost approach or the successful-efforts approach to account for costs based on their accounting preferences and industry standards.