FRONTIER OILFIELD SERVICES INC - FORM 10-Q/A - XML - IDEA: XBRL DOCUMENT - November 9, 2011

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Summary of Significant Accounting Policies
9 Months Ended
Aug. 31, 2011
Summary of Significant Accounting Policies [Abstract] 
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
     Revenue Recognition
     For direct oil and gas operations, the revenue is recorded when production is sold. The Company accrues revenue for oil and gas production sold but not paid.
     Concentration of Credit Risk
     During the nine months ended August 31, 2011 the Company had a net increase in advances from Gulftex totaling $67,532. The Company had a net decrease in advances from Gulftex totaling $80,609 during the nine months ended August 31, 2011. The balance due Gulftex as of August 31, 2011 is $67,532. The cash portion of this balance is $45,056. See Note 14.
     Oil and Gas Revenue Receivable
     Receivables consist of accrued oil and gas receivables due from either purchasers of oil and gas or operators in oil and natural gas wells for which the Company owns an interest. Oil and natural gas sales are generally unsecured and such amounts are generally due within 30 days after the month of sale.
     Inventory
     Inventory consists of crude oil held in storage tanks. Inventory is stated at market based on anticipated selling prices.
     Property and Equipment
     Property and equipment are stated at the Company’s cost and are depreciated on a straight-line basis over five to seven years. Maintenance and repair costs are expensed when incurred, while major improvements are capitalized.
     Oil and Gas Properties
     The Company follows the successful efforts method of accounting for oil and gas exploration and development expenditures. Under this method, costs of successful exploratory wells and all development wells are capitalized. Costs to drill exploratory wells that do not find proved reserves are expensed.
Significant costs associated with the acquisition of oil and gas properties are capitalized. Upon sale or abandonment of units of property or the disposition of miscellaneous equipment, the cost is removed from the asset account, the related reserves relieved of the accumulated depreciation or depletion and the gain or abandonment loss is credited to or charged against operations. Both proved and unproved oil and gas properties that are individually significant are periodically assessed for impairment of value, and a loss is recognized at the time of impairment. Capitalized costs of producing oil and gas properties, after considering estimated dismantlement and abandonment costs and estimated salvage values are depreciated and depleted by the unit-of-production method. Support equipment and other property and equipment are depreciated over their estimated useful lives.
     Long-lived Assets
     The Company reviews its long-lived assets to be held and used, including proved oil and gas properties accounted for under the successful efforts method of accounting, whenever events or circumstances indicate that the carrying value of those assets may not be recoverable. An impairment loss is indicated if the sum of the expected future cash flows is less than the carrying amount of the assets. In this circumstance, the Company recognizes an impairment loss for the amount by which the carrying amount of the asset exceeds the estimated fair value of the asset.
The Company provides for depreciation, depletion and amortization of its investment in producing oil and gas properties on the units-of-production method, based upon independent reserve engineers’ estimates of recoverable oil and gas reserves from the property.
     Asset Retirement Obligations
     The Company accounts for asset retirement obligations by recording the fair value of a liability for an asset retirement obligation (“ARO”) in the period in which it is incurred when a reasonable estimate of fair value can be made. Asset retirement obligations are capitalized as part of the carrying value of the long-lived asset. The Company writes down capitalized ARO assets if they are impaired.
The following table describes changes to the asset retirement liability for the nine months ended August 31, 2011.
         
ARO at November 30, 2010
  $ 21,347  
Accretion expense
    —  
Liabilities settled (see Note 8)
    (21,347 )
Changes in estimates
    —  
 
     
ARO at August 31, 2011
  $ —  
 
     
     Income Taxes
     Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Income tax expense is the tax payable for the year plus or minus the change during the period in deferred tax assets and liabilities.
     Equity Instruments Issued for Goods and Services
     The Company measures the cost of employee services received in exchange for an award of equity instruments based on the fair value of the award on the grant date. That cost is recognized in the financial statements over the period during which the employee is required to provide services in exchange for the award with a corresponding increase in additional paid-in capital.
     Earnings Per Share (EPS)
     Basic earnings per common share is calculated by dividing net income or loss by the average number of shares outstanding during the year. Diluted earnings per common share is calculated by adjusting outstanding shares, assuming conversion of all potentially dilutive stock options. The computation of diluted EPS does not assume conversion, exercise, or contingent issuance of shares that would have an antidilutive effect on earnings per common share. Antidilution results from an increase in earnings per share or reduction in loss per share from the inclusion of potentially dilutive shares in EPS calculations.
     Use of Estimates
     The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates include: estimates of proved reserves as key components of the Company’s depletion rate for oil properties; accruals of operating costs; estimates of production revenues; and calculating asset retirement obligations. Because there are numerous uncertainties inherent in the estimation process, actual results could differ materially from these estimates.
     Fair Value Measurements
     The Company adopted fair value accounting for certain financial assets and liabilities that have been evaluated at least annually. The standard defines fair value as the price at which an asset could be exchanged in a current transaction between knowledgeable, willing parties. A liability’s fair value is defined as the amount that would be paid to transfer the liability to a new obligor, not the amount that would be paid to settle the liability with the creditor. Impairment analyses will be made of all assets using fair value measurements.
Assets and liabilities measured at fair value are categorized based upon the level of judgment associated with the inputs used to measure their fair value. Hierarchical levels, defined by generally accepted accounting principles and directly related to the amount of subjectivity associated with the inputs to fair valuation of these assets and liabilities, are as follows:
Level 1    Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets that the Company has the ability to access.
 
Level 2    Inputs to the valuation methodology include:
  •   quoted prices for similar assets or liabilities in active markets;
 
  •   quoted prices for identical or similar assets or liabilities in inactive markets;
 
  •   inputs other than quoted prices that are observable for the asset of liability;
 
  •   inputs that are derived principally from or corroborated by observable market data by correlation or other means.
      If the asset or liability has specified (contractual) term, the Level 2 impute must be observable for substantially the full term of the asset or liability.
Level 3    Inputs to the valuation methodology are unobservable and significant to the fair value measurement.
Cash, receivable and payable amounts, accrued expenses and other current liabilities are carried at book value amounts which approximate fair value due to the short-term maturity of these instruments.

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