IFRS 6
Exploration for and Evaluation
of Mineral Resources
Definition
The search for mineral resources, including minerals, oil, natural gas and similar non-regressive
resources after an entity has obtained legal rights to explore in a specific area, as well as the
technical feasibility and commercial viability of extraction of resources.
History of IFRS 6
Exposure Draft ED 6 Exploration for and Evaluation of Mineral Resources published: 16
January 2004
Comment deadline : 16 April 2004
Approved date and issued : 9 December 2004
Effective date : 1 January 2006
OBJECTIVES
● Provides guidance on accounting for exploration and evaluation expenditures including
recognition of exploration of assets
● Specify financial reporting for exploration and evaluation of mineral resources
● Limit the need for entities to change their existing accounting policies for exploration
and evaluation of assets
Scope
● An entity shall apply the IFRS to exploration and evaluation expenditures that it incurs.
● 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 of assets
When developing its accounting policies, an entity recognising exploration and evaluation
assets shall apply paragraph 10 of IAS 8 Accounting Policies, Changes in Accounting Estimates
and Errors.
IAS 8, Paragraph 10
In the absence of a Standard or an Interpretation that specifically applies to a transaction, other
event or condition, management must use its judgement in developing and applying an
accounting policy that results in information that is relevant and reliable.
Measurement of Exploration and Evaluation Assets
The exploration and evaluation expenditure which is recognized by the entity as an exploration and evaluation asset, will be
measured at cost.
The elements of exploration and evaluation expenditure which can be capitalized as part of exploration and evaluation asset
may include:
● Purchase costs of exploration and evaluation rights
● Cost associated with exploratory drilling
● Labor cost
● Cost incurred in relation to geographical and geological factors studies
● Cost incurred in determination of the commercial viability and technical feasibility for the extraction of mineral resources
The entity can measure the exploration and evaluation asset at reporting data either:
● Under cost model or
● Under revaluation model
However, whichever model selected should be applied consistently from one period to the next and should be according to the
classification of assets (IAS 16 or IAS 38)
Impairment
IFRS 6 effectively modifies the application of IAS 36 Impairment of Assets to exploration and evaluation
assets recognised by an entity under its accounting policy.
Entities recognising exploration and evaluation assets are required to perform an impairment test on
those assets when specific facts and circumstances outlined in the standard indicate an impairment
test is required.
If an impairment test is required, any impairment loss is measured, presented and disclosed in
accordance with IAS 36.
Impairment Test
Circumstances indicate that an entity should test Exploration & Evaluation assets for impairment:
a. The period for which the entity has the right to explore in the specific area has expired during the
period or will expire in the near future, and is not expected to be renewed.
b. Substantive expenditure on further exploration for and evaluation of mineral resources in the
specific area is neither budgeted nor planned.
c. Exploration for and evaluation of mineral resources in the specific area has not led to the discovery
of commercially viable quantities of mineral resources and the entity has decided to discontinue such
activities in the specific area.
d. Sufficient data exist to indicate that, although a development in the specific area is likely to
proceed, the carrying amount of the E&E asset is unlikely to be recovered in full from successful
development or by sale
Presentation
IFRS 6 requires that an entity treat exploration and evaluation assets as separate class of
assets. Classification of assets must be made in accordance with:
● IAS 16 Property, Plant and Equipment
● IAS 38 Intangible Assets
Disclosure
IFRS 6 requires disclosure of information that identifiesand explains amounts recognised in the
financial statements arising from the exploration for and evaluation of mineral resources.
IFRS 6 requires an entity to have accounting policies for :
● Exploration and Evaluation expenditures
● Recognition of Exploration and Evaluation assets
IFRS 6 requires that entity’s financial statements show amounts of:
● Assets
● Liabilities
● Investing cash flows
● Operating cash flows
All arising from the exploration for and evaluation of mineral resources.
