IFRS 6
EXPLORATION FOR AND EVALUATION OF MINERAL RESOURCES
MOHAMED SAMIR
Senior Accountant I +14k Followers
CMA,IFSR DIP
SCOPE
An entity shall apply the IFRS to exploration and evaluation expenditures that it incurs.
The IFRS does not address other aspects of accounting by entities engaged in
the exploration for and evaluation of mineral resources.
An entity shall not apply the IFRS to expenditures incurred:
(a) before the exploration for and evaluation of mineral resources, such as
expenditures incurred before the entity has obtained the legal rights to explore a specific area.
(b) after the technical feasibility and commercial viability of extracting a
mineral resource are demonstrable.
RECOGNITION OF EXPLORATION AND EVALUATION ASSETS
Expenditure is recognized as an asset for IFRS 6 until the technical
feasibility and commercial viability of extracting resources can be
demonstrated. Note that this also means that the entity must have the
necessary technical and financial means to extract the resources.
An entity can then choose its own accounting policy as long as it is line
with IAS 8. Specifically it must conform to IAS 8 Paragraph 10, which states
that management should use itʼs judgment in developing an accounting
policy that results in information that is relevant and reliable. A er
choosing their policy, entities must then apply their policy consistently.
Measurement at recognition
Exploration and evaluation assets shall be measured at cost.
Elements of cost of exploration and evaluation assets
An entity shall determine an accounting policy specifying which expenditures
are recognised as exploration and evaluation assets and apply the policy
consistently. In making this determination, an entity considers the degree to
which the expenditure can be associated with finding specific mineral
resources. The following are examples of expenditures that might be included
in the initial measurement of exploration and evaluation assets (the list is not
exhaustive):
(a) acquisition of rights to explore;
(b) topographical, geological, geochemical and geophysical studies;
(c) exploratory drilling;
(d) trenching;
(e) sampling; and
(f) activities in relation to evaluating the technical feasibility and
commercial viability of extracting a mineral resource.
*Expenditures related to the development of mineral resources shall not be
recognised as exploration and evaluation assets. The Conceptual Framework for
Financial Reporting and IAS 38 Intangible Assets provide guidance on the
recognition of assets arising from development.
*In accordance with IAS 37 Provisions, Contingent Liabilities and Contingent Assets an
entity recognises any obligations for removal and restoration that are incurred
during a particular period as a consequence of having undertaken the
exploration for and evaluation of mineral resources.
MEASUREMENT AFTER RECOGNITION
After recognition, an entity shall apply
either the cost model or the
revaluation model to the exploration and
evaluation assets. If the revaluation
model is applied (either the model in IAS 16
Property, Plant and Equipment or the
model in IAS 38) it shall be consistent with
the classification of the assets (see
paragraph 15).
CHANGES IN ACCOUNTING POLICIES
An entity may change its accounting policies for exploration and
evaluation expenditures if the change makes the financial statements more
relevant to the economic decision-making needs of users and no less
reliable, or more reliable and no less relevant to those needs. An entity
shall judge relevance and reliability using the criteria in IAS 8.
To justify changing its accounting policies for exploration and evaluation
expenditures, an entity shall demonstrate that the change brings its financial
statements closer to meeting the criteria in IAS 8, but the change need not
achieve full compliance with those criteria.
PRESENTATION
Classification of exploration and evaluation assets
An entity shall classify exploration and evaluation assets as tangible or intangible according to the nature of
the assets acquired and apply the classification consistently.
Some exploration and evaluation assets are treated as intangible (eg drilling rights), whereas others are
tangible (eg vehicles and drilling rigs).
To the extent that a tangible asset is consumed in developing an intangible asset, the amount reflecting that
consumption is part of the cost of the intangible asset. However, using a tangible asset to develop an
intangible asset does not change a tangible asset into an intangible asset.
Reclassification of exploration and evaluation assets
An exploration and evaluation asset shall no longer be classified as such when the technical feasibility and
commercial viability of extracting a mineral resource are demonstrable.
Exploration and evaluation assets shall be assessed for impairment, and any impairment loss recognised,
before reclassification.
IMPAIRMENT
Recognition and measurement
Exploration and evaluation assets shall be assessed for impairment when
facts and circumstances suggest that the carrying amount of an
exploration and evaluation asset may exceed its recoverable amount. When
facts and circumstances suggest that the carrying amount exceeds the
recoverable amount, an entity shall measure, present and disclose any
resulting impairment loss in accordance with IAS 36, except as provided by
paragraph 21 below.
For the purposes of exploration and evaluation assets only, paragraph 20 of
this IFRS shall be applied rather than paragraphs 8–17 of IAS 36 when
identifying an exploration and evaluation asset that may be impaired.
Paragraph 20 uses the term ‘assets’ but applies equally to separate exploration
and evaluation assets or a cash-generating unit.
ONE OR MORE OF THE FOLLOWING FACTS AND CIRCUMSTANCES INDICATE THAT AN ENTITY
SHOULD TEST EXPLORATION AND EVALUATION ASSETS FOR IMPAIRMENT (THE LIST IS NOT EXHAUSTIVE):
the period for which the entity has the exploration for and evaluation of
right to explore in the specific area has mineral resources in the specific
expired during the period or will expire in area have not led to the discovery
the near future, and is not expected to be of commercially viable quantities of
renewed. mineral resources and the entity
substantive expenditure on further has decided to discontinue such
exploration for and evaluation of mineral activities in the specific area.
resources in the specific area is neither sufficient data exist to indicate
budgeted nor planned. that, although a development in the
specific area is likely to proceed,
the carrying amount of the
exploration and evaluation asset is
unlikely to be recovered in full from
successful development or by sale.
DISCLOSURE
An entity shall disclose information that identifies and explains the
amounts recognised in its financial statements arising from the
exploration for and evaluation of mineral resources.
To comply with paragraph 23, an entity shall disclose:
(a) its accounting policies for exploration and evaluation
expenditures including the recognition of exploration and evaluation
assets.
(b) the amounts of assets, liabilities, income and expense and operating
and investing cash flows arising from the exploration for and
evaluation of mineral resources.
ABOUT AUTHOR
MOHAMED SAMIR
Senior Accountant I +14k Followers
CMA ,IFRS DIP
W H AT S : + 9 6 8 9 9 0 0 4 1 2 7
IFRS 6
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