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The document discusses the accounting treatment of exploration and evaluation expenditures related to mineral resources under IFRS 6. It outlines the criteria for recognizing these expenditures as assets, including the necessity of obtaining legal rights and demonstrating technical feasibility and commercial viability. Additionally, it covers various costs associated with mineral resource extraction, including acquisition, exploration, development, and restoration costs, as well as the concept of depletion of wasting assets.

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Faith Rapatan
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16 views14 pages

Image To PDF 20250707 22.55.18

The document discusses the accounting treatment of exploration and evaluation expenditures related to mineral resources under IFRS 6. It outlines the criteria for recognizing these expenditures as assets, including the necessity of obtaining legal rights and demonstrating technical feasibility and commercial viability. Additionally, it covers various costs associated with mineral resource extraction, including acquisition, exploration, development, and restoration costs, as well as the concept of depletion of wasting assets.

Uploaded by

Faith Rapatan
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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ON UATION © / p EVAL 2 financial reporting 4, RATION AN} ecifying the oT resorces. EXPLO! d speCUy” mink ; RS 6 is the sta devaluation io} oil, natural gas and Simita, IF! jon an jnerals, OF» min io the explora lade 8. ineral resou} source’ remagenerace TOU no} Jon on oration Cor mineral . mineral resources ; ion ee rces after the entity re as ar ic area as we the term explor eina specifi Te U, 7 denned as the S222 cnt to explor feasibility an ommercia) fie bined lege of the techni re aOUTCeS. . ination iner: : oe oo of extracting the ™ ection with the explora viability eine hatere’ his technical vnility of extracting a Minera) rT 1 es incurred in ‘The expenditures incur Joration and evaluatj f mineral re’ — : ind evaluation eral 2 feasibility and commercia exp resource are known as expenditures.\ ye h ds, exploration and evaluation exp = In other words, incurred Wi wo conditions: incurred under the following two i the entity has already obtained the legal right to explore a a. The 0 mineral resource. b. The technical feasibility and commercial Viability of extracting the mineral resource are not yet demonstrable, n expenditures do not itures incurred before an entity has obtained the \ ‘plore a: specific area or after the technical legal right to ex feasibility and commercial viability of extracting q mineral source are demonstrable, valuatio: jrpenditures incurred after the technical feasibility and commercial] Viability are demonstrable are development “xPenditureg telated to di nu "a, evelopment of example ‘ ent Of miner re a lingronde zation for Commeroia] Producti e s Unnels Cannot be recogni i i a three SNized as exploration 652 sploratio; £ mand ¢ ‘Acquisitio: Val t Topographicn,™ May, . , ‘ical ion studies EMS toca XPOnd .. Exploratoi OBicg, ith G 1 se fe lure: i eaching: tilling — | oche . ¢ Sampling ical ana ctivities i geophysic £ oe tivities in relat ysical Mercia] wo2 to Gener: al viaby ® t0 noes minty of Mating thy e © techni ion and istrative ting eainloat feasibility 8 @ mineral resource. : ‘ah Cost: xploratio; aati 8 di a mand eval, activite attributable ‘uation | * e explorati loration and evaly, asset ation loration exp and evaluation expendi assej, titures may qualify as as However, the standara ‘ oes no} ior the recognition of Provide a cle; exy nos i ploratio, clearcut guidance mn ay nd evaluation asset. Accordingly, an enti > an enti ee m aceounting polic: y As a matter of fact, IFRS 6 apply its previous acco ‘S 6 permits an . . . unting ie entity. to contix information is relevant and 6 pee prouided dh resulting e- ; easureme i M nt and classification Exploration and evaluation a a ost. ion asset shall.be measured initially nition, an entity shall apply either the cost Juation model. After initial recog s classified either as tangible model or the reva Exploration and evaluation asset i asset or an intangible asset. cles and grilling sigs would be clas ld be class i nd drilling rights wo 653 sified a8 : ified as ‘ For example, vehi tangible assets 4 intangible assets. - - ™y ty ral resources. clud ally ine er . J resources aoe timber: the assets are Physical, Natural es veF, _ id an tae like gol lle ts are so call et not be Teplaceg the assets can sumed, consul d once sting ass dammed an ced only by the Procesg anymore. repla 8 Ce ope produced by man, the wasting asset ot If ever, nn oes Cal of nature. Natural resot of nature. ain features. two mai si e characterized by ing assets ai Thus, wasting ed. a. The wasi ically consum a physicall} ts. are ae ting asset ; th wasting assets are irreplaceable. b. The b) Cost of wasting asset ices i ‘counting for an Entities follow a wide variety of practices in acc Entities extractive industry. At present, IFRS does not address There is no ¢ extractive op m wasting assets, ‘omprehensive standard applicable to the ining industry. The only standard Telated-to the mining industry is IFRg 6 on e financig Teporting of &xploration an valuation °Xpenditures, . In 8eneral 5 Cost of categories, name ly: a Acquisition Cost b Exploration Cost °, Development Cost d Estimate Wasting 8set can be divideg into four *eStoration cost 654 uisitior pea’ mA cost cquisition cose ; Anvaining the naz. the Ural p Price pnauestionably, ty, 7 his ig generally, the acqui Grearal Tesource geisition account © sthere is a residue) LI source, the portion @2@ vai t ion of thle after re , nay be included ; a ~ extraction of the natural Pt the WUisiti, Natura) ior e land may be tral pei” Cost appt Set up j, Source ger able to the lar cost should be cha; Din ag, account, e land. © ; ae Ted to the arate account a actually, the land vate is the Fesouree acma ne © resid yunt. for PURPOSES OF computis eee S depletion “MMe of @ wasting asset ion, thus, the land v: a alue isitio = acquisition. cost_to get the denen deducted from the total ‘able amount. ° tate Exploration cost Exploration cost ii t is the ex technical feasibilit; Penditure incurr caval Y y and commercial vishilty ot peteotne 2 mineral resource are demonstrated lity of extracting a simply stated, the exploratior . attempt to locate the natural vesoutee ne oe ocurred ee extracted or exploited. economically be ght to explore, and sampling, the technical feasibility and a mineral resource and directly attributable to acquisition of ri ration cost includes drilling, trenching al study, exploratory in relation to evaluating ability of extracting dministrative cost Explor geologic: activity commercial vii general and a exploration activity: ay result U n either success Oo failure. The exploration ™ 655 exploration cog, o g fo) int nti oul ace’ nods of ated to the discover wo methods rel BCOVErY op is capitalizeg of grectlY FP resource wrectly TP, Successf¥l eat di natural a oration Sretble nat es" OF UNSUCcesef.) The oxPally prirce proP to “dry poe Gat of the Tes cost related period in oration Tsed i The explora discovery d b, Full cost metho cece: . tion costs, Whe su exploration cog, All explorat 1g COS} that any are capitalized @ ison the theory © coossary. before any nd ther fitable resource can » pro esful or UNsUCcessfy ce: ts, whether sue eurce discovery” t method is ‘ fal gos chase” and Suamercialy produ found. is the cost of locating illing dry holes is part of cost of drilling ene holes. in practice. thods are used in pr voeriese eae d successful oil entities follow the suc ‘ Most large and s anethod. / a The full cost method is popular among small oil entities, Development cost Development cost is the cost incurred to exploit or extract the natural tesource that has been located through successful exploration, ‘Development cost m, ay be in the form of tangible equipment and intangible development cost, Tangible eg mipment includes ty, ansportation machinery, tunnels, quipment, heay bunker and mine shaft, * ; ; Pitalizeg aS Cost of e, fa In arate [Ccount and 1th normal depreciation Policies, ent cost ig Capital: Constryg uch cost includes drins “ad Kinet of the struction Of Welle 8 Sinking i Litangidie Tesourg, natural ine shaft and tripPing costs aur; st 2 . gource deposit 2! or Oe as telopm. - ero he acti nent rag activi t Phase towity qe StXiPPINE coats Recess; Bain acceeeary to remove Tre mine before prog Meu bpohe mine or wasniction i atu ipping Bassey Bins a he dy stir Costs dus be.are wencie’lopment ph SuipPing may sti) gS wo dant cabtialeed as com She production phase nti Produc” aot, ere are two ones of thes f© ae Phase production phase. efits fro, ine, @ waste materia . Phase, namgro™ th rial during phe stripping acne: Ping - activity durin ig the a that can be ivity when strip, accounted faye Brod “oo percent ing during they 8 inventor ele mineral re ; tees resoure resource. te butopte reduction The material removed @ combinahonee is not necessaril: mn of waste and usabl le ». The stripping activi provide improvey turing th ved or di © production phase might also pr DI quantity of mineral reso cP evel of oe access for additional 8s to the mineval stripping activity asset fo the extent that the benef improved access to mi nefit of the sti ; be recognized as sirippees resource, the sue oe is presented activity asset The sermping activi asse! Pp ed as part of mine as: e stripping activity 7 _ se A stripping activity asset shall b ne fllowing conditions are met: e recognized if all of the a. It is probable that future econom’ i . a tu eb additional quantity will flow to the ae fa the toa p. The component of the resource body for which access has been improved can be identified. The costs associated with the stripping activity can be cn measured reliably. ion is not mel, the production stripping costs are included in operating expense when incurred. The stripping activity asset shall be initia ssur ‘After initial recognition, the asset on mo a either the cost model or a ual sie ee ae ippi ivi hi oe i duction The stripping activity asset 8 asst using the Pr ripping ot amortize ita vnopriate. intangible and depreci@ propriate me If any condit asured at cost. ed using, , method unless another 4 to be incurred in order 5 7 the oe dition. cost 19 Me pation ni e307 its OF +110 the cost of ree9 rope} son cost Restoratio? © stimoter i bring the ay be ott ¢m expe such restoration 2 ginst the erty or “ne property resource Pt Ur, ed residual value of 4° en , The estimated cost OF TT nly wasn. te a Sone capt jc acquired. coavion when the asset i§ ; t must bi abligatie storation cost must be a, d by law or contract, The discounted. ted re: the estima’ Be other words, the vequire aa present obligation re Es aa estimated restoration cos' : Depletion The reinoval, extraction or exhaustion of a natural resource jg called depletion. Depletion is the systematic allocation of the depletable a; of a wasting asset over the period the natural rego: extracted or produced, mount Uurce ig In seen however, depletion is recognized as the Cost of the material used in production and thus becomes the finishe d duct ed pro patie extractive entity since the wasting asset is conceived sire Cost of the materials available for ‘Production, ne Depletion method Normally, depletio Production nm i . method. § computed using the output or The depletaby, . eC Units estimated epee of € wasti; oe ® depletion ray, tracted to obt FE Bsset is ching : ay " vided by the tracted auupy the Jar Unit is then ° tebletion Tate per unit "8 the year to Orrive ay te tiplied 2, the s e depler units ton for the f Period, 658 gustration pasting A8s0t ones pow natural Y has ee phe acquisition co; "Source fount to Pg, St is sPcting wells 000,099 °:000, 010 ch ‘and qoos, ang’ 00, efete of the wasting ing i dleveics Telated, asset §)4 lopment 1 exPlor t ation costs jgestimated Set theres tPOsit an ses that henge Poste ars SOSt estimated that the eeheDoait ang Bees curred in us depletion rate tee aa 5,000,000. Total Wireg the a, © TEE to use a property e ar debostis are : is 'PProxiy Depletion rate pe computed ag st @2¥ 1,000,000 Per uni - mit = _ P10,000,000 000,000 units | = Pio 950,000 units are the depletion eo then lying the pe rer the a args first rod a Year is BOBO Gane oerations 1 ot os 22:500,000, computed by fi puted by p10. pepletion ‘Accumul: lated depletion 2,500,000 2,500,000 00 0 units by the rate of the inc © dep! eye ome statement, the depleti d rt of . ‘epletion is classific part of In of production or cost of good: ds sold. the cost jowever, the depletion ie ay jg included as cost of ee to units unsold at year-end Ifa statement of financi sition i tear, the wastin cial position is prepared at the end of the g asset should be shown as a separate first 5 line item as a noncurrent asset: Resource deposit, at cost 10,000,000 ‘Accumulated depletion ( 2,500,000) Carrying amount 7,500,000 = tion is the straight line \ not generally favored f computing deple' [life of a wasting method 6 i raight line approach is ‘mate the useful n difficult to estima years. Another method. The st! because it is oftei asset in terms of 659 te he TeSOUre® dong, jon ra! of t] i it 27 oy eotimate of tbe TESOUrE avails im a ae ogee informe sophistig:’ble isio} ris just 301 Revis' the 0 beca we bec ¢ frequently either cosos ba f recoverable reso, ae 0 be wroduction P! stimate O fod in accounting fe eae orising) «problem faced in Property, pig jon of the Or gam usel nm the sar the ee rise to Soerning # deposit si na change in and equipment. are to be ii te estima’ . sreapeetively, if necesse1y- ise the depletion rate on, eleneciehs dure is to serie ee eine depletap, Accordingly, the proce SS by Cetera of the Productive basis, that 6, by ioe raspetve bani ati, cost of the wast output. handled currently ang Illustration iti lopme i le, additional developmen is receding example, qe ay Pa 780,608 incurred in iasooan xe ar oe ie deposits are estimated to be 1,250, ni 6. vera beginning of the second year. The depletion rate per unit for the second year is revised, Original cost of wasting asset Additional development costs Total Accumulated depletion ~first year Remaining depletabje amount 10,000,009 sin second year 2,750,000 13,750,000 2,500.0 (2,500,000) I 750,000/ 1,250,099 Units) Pg Assume 300,000 Units are extracted in the Second yeay- Depletion . , Accumulated depletion . 00,000 (300,000 Units x pg) 2,700,000 660 preciation o¢ pel angle satomeny gay gperociated follow 0% reps Sano, gnerally, the q, DE nonetted | eae cap erations is lepreg: in pePMent yerg ent heavs pep life of paced On iStion leprecighatate accor ‘mining | m ol ‘account ene vecful life ee Mf BDI woes 5 hod ful feMPENt Used in mi method of depreci; the ott Which, he eaupmenr es if th ation §1%Pment i. siduipment or the gut if the Useful lige of norm 18 short r ° Iv use ee a sed,” thE straight line utod of depreci mw am Prselation Bo wasting owever, if the mini equals asset 7 Mini luent] 1s shi future extractive pe Caipm Ny used, over the output tive proj bment is movably ‘able and can b ye used a ful life its use fe usin, om & the erate, eadipment ht line meth is depreciated. od. over jilustration natural resoure ‘ © deposit ; units. Heavy equipment is estimat acquired at a cost of Pg eessey ne to contain 450,000 equipment is 10 year 9,000,000. Pent the de ok years, 0. The useful ie fi is ‘ife of the jf it is estimated that - 30,001 year, then the di At 30,000 units w: fn, then erent wale ou aga - tha : s divided by yproximately jonger than the 10-year useful Mea enone which is mt. Accordingly, the equi year's followin g tk ee should be depreciated over 1 y f g th straight line method giving an ann al depreciation of P900,000 (P9,000,000 divided by 10 years) stimated that 50,000 units would be extracted ld be exhausted in seful the deposit wou orter than the 10-year us fit is then However: 1 9 vears, which is § each year ap roximately life of the equipment. ld be based on the sho Thus, de preciation on the equipment 8 life of the di nosit following the outpul method of depreciation. st is P20, computed by dividing p9,000,000 * reci® for the first year WO! a be The depreci fo by 450,000 wt P1,000,000, 50, ment ats. (90 units x P20 661 ———— ~ Ro eprociating Minin pr t be used. ,d in. ‘cannot . a aciod gpmetnee of shutdown is baseg ato the Jeet ing the straight ling Dory, %, pipment is divideg unt of the a at the depreciatig? 201 ai ni ng corti Tr ipment Ly The remainnife of # a shutdown in g the remaining down if there is a sh the in the year of she? example bee jermined using the strajgy: has, in the PREORE tion 18 seaond year ee 9,000,009 Fine method. 1,000,009) Equipment, at cost nm 8.000.009 Accunaulated depreciation g ofsecond year) ——te it (beginnin Carrying amount * (8,000,000/9 year's) 888,889 Depreciation for second year (8: reciation is again comy When operations are resumed, the depreciatior gi puted en following the output method. ch case, a new depreciation rate per unit is computed dating the remaining carrying amount of the equipment by the remaining or revised estimate of the deposit. Thus, if in the third year, operations are resumed : and 60,009 units are extracted, the depreciation on the equipment is computed using the output method. Equipment, at cost 9,000 Accumulated depreciation (1,000,000 + 888,888) isos (1,888,888) Canying amount ~beginnin, 1g Of third yeay Original estimate of deposit ss: Extracted in first year 150,000 units Remain ng estimate of deposit 000 a Depreciation Tate per unit (7 400,000 units 111,112; — 400,000) — grust fund a, vader the tru tana ge is as ad a ryote consequently, Fang th ; , : Garing the lifetime pit, for thhare cap; prowever, the °F thee cann, Protechital of a coxporati Mere co Perrot b, of er jon. Ee limited only 12 orati orect be re editors. ly to tration tion’ "turned ccordingl the balge® to shareholders ee ecm ee lance DAY ai Aeficit because thi, POrati Of retavidlends to to shareholders, is Wo) alae ined conn ; a ; cann tantanaeay di amnbey dividends if i mt to a rebum of capital wasting asset doctr; rine under ieee wasting ag anentity engaged in thet, “ ai in the qq octrin urn. Cal le, < rel pital to shareh, extraction & wasting asse Olders diy ofa natural. st corporation or ring the lifetimeof the: can legally corporation. Corporati ‘ation can pay dividend not Accordingly, a wi , @ wasting asset, ear ings but also to the extent of only to the extent 7 accumulated deplongtined n. The amount paid i . in for as a liquidati excess of ating dividend or rane yf ee accounted urn of capital. fllustration Wasting asset, at cost Accumulated depletion 1,000,000 100,000 200,000 Retained earnings jf the maximum amount is declared as dividend: Retained earnings Capital liquidated aa Dividends payable . 300,000 the retained earings The dividend of P100,000 in excess of balance is actually @ liquidating divident return of capital to shareholders. 4 and accounted for as tion accoul The accumulated deple se the palance 18 used only for al can be legally liquidating divide de ermining purposes of returned tO shareholders- te formoul® Complet tained e877 fed depletion Eig hcoumulat Sate as 1 in pam ing i” Total ital ita Fnending Less: Cot 1 Unrealized’ Maximum dividend Illustration it cost Yasting asset, a ‘peeiaean depletion ie are capital a Jeohallanaduih |— prior yea! oe nia Retained earnings aged on 50) ent year Depletion for the curre! ; Petal at P20 per unit 5,000 units) Inventory of resource deposit (6; , ividend Computation of maximum divid 664 a 8,000,000 3,000,009 5,000,000 500,000 | 2,000,000 1,000,000 | 300,000 Retained earnings Add: Accumulated depletion 5,000,000 Total : Less: Capital liquidated 500,000 Unrealized depletion inending inventory (6,000 units x P20 per unit) 100,000 600,000 Maximum dividend 4,400,009 —=—== If the amount of P4 4 i . a year-end » 400,000 ig declared as divideng ae Retained earnin Capital iguidated 2,000,000 Dividends payable 2,400,000 The cumulay 1,400,000 umulatiy 5 2,900,009 (Poon cnee of the capital jj id Meduction fron ra ; 00 + 2, Widateg account of "Shareholders P 2 18 Drege equity, P*Sented as g 2Uthorizes the retay earn; is based on the toga, To pation to the retag seco retainine fee’ ned, Phy that ed ean’ the the wasting use pec? to limit dividend

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