MODULE 31 Exploration For An Evaluation of Mineral Resources

MODULE 31 Exploration for an Evaluation of Mineral Resources
LEARNING OBJECTIVE:
Explain the accounting for exploration and evaluation expenditures
OVERVIEW
PFRS 6 Exploration for and Evaluation of Mineral Resources has the effect of allowing entities
adopting the standard for the first time to use accounting policies for exploration and evaluation
assets that were applied before adopting PFRSs. It also modifies impairment testing of explo-
ration and evaluation assets by introducing different impairment indicators and allowing the
carrying amount to be tested at an aggregate level (not greater than a segment).
Acquiring new knowledge

Asynchronous - links to more information: www.farhatlectures.com; http://www.ifrsbox.com
A synchronous discussion for this lesson will be scheduled on October 27, 2020 (Tuesday 9:00
– 10:00 AM)
Definitions
Exploration for and evaluation of mineral resources - means the search for mineral
resources, including minerals, oil, natural gas and similar non-regenerative resources after the
entity has obtained legal rights to explore in a specific area, as well as the determination of the
technical feasibility and commercial viability of extracting the mineral resource. [PFRS 6.
Appendix A]
Exploration and evaluation expenditures - are expenditures incurred in connection with the
exploration and evaluation of mineral resources before the technical feasibility and commercial
viability of extracting a mineral resource is demonstrable. [PFRS 6.Appendix A]
Accounting policies for exploration and evaluation

PFRS 6 permits an entity to develop an accounting policy for recognition of exploration
and evaluation expenditures as assets without specifically considering the requirements of
paragraphs 11 and 12 of PAS 8 Accounting Policies, Changes in Accounting Estimates and
Errors. [PFRS 6.9]
Thus, an entity adopting PFRS 6 may continue to use the accounting policies applied immedi-
ately before adopting the PFRS. This includes continuing to use recognition and measurement
practices that are part of those accounting policies.
PFRS 6 applies to expenditures incurred after the entity has obtained legal rights to
explore in a specific area, but before the existence of mineral reserves is in fact established
and the technical feasibility and commercial viability of extracting mineral resources are
demonstrable.
Development cost – are expenditures incurred after technical feasibility and commercial
viability are demonstrable.
Initial measurement
Exploration and evaluation assets are initially measured at cost.
Exploration and evaluation assets – are “exploration and evaluation expenditures recognized
as assets in accordance with the entity’s accounting policy.” (PFRS 6. Appendix A)
Examples of expenses that might be included in the initial measurement of exploration and
evaluation assets:
a. Acquisition of rights to explore
b. Topographical, geological, geochemical and geophysical studies
c. Exploratory drilling
d. Trenching
e. Sampling
f. Activities in relation to evaluating the technical feasibility and commercial viability of
extracting a mineral resource. (PFRS 6.9)
The initial measurement also includes the present value of any decommissioning and
restoration cost for which the entity has incurred and obligation as a consequence of having
undertaken the exploration and evaluation activities.
Expenditures related to development of mineral resources are not recognized as exploration

and evaluation assets.
Subsequent measurement
Exploration and evaluation assets are subsequently measured using either cost or the
revaluation model.
Changes in accounting policies

An entity may change its accounting policy for exploration and evaluation expenditures if the
change will results in more relevant and no less reliable, or more reliable and no less relevant,
information. The entity judges relevance and reliability using criteria in PAS 8.
Classification of exploration and evaluation assets

Exploration and evaluation assets are treated as a separate class of assets and classified as
tangible (e.g., vehicles and drilling rigs) or intangible (e.g., drilling rights) depending on
the nature of the assets.
Reclassification of exploration and evaluation assets

When technical feasibility and commercial viability of extracting a mineral resource are
demonstrable, the exploration and evaluation assets are reclassified in accordance with other
relevant standard.
Impairment loss
Exploration and evaluation assets are assessed for impairment when indication exist that their
carrying amount exceeds recoverable amount. The entity is allowed to determine its own
accounting policy for the allocation of impairment.
Example of indications for impairment:
a. The right to explore has expired or will expire in the near future and is not expected to be
renewed.
b. Expenditures for further exploration and evaluation activities are significantly higher than
expected.
c. The exploration and evaluation activities in a specific area have to be discontinued
because no mineral resources have been discovered.
d. Indication exist that, although a specific area will be developed, the carrying amount of
the exploration and evaluation assets is unlikely to be fully recovered.

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MODULE 31 Exploration for an Evaluation of Mineral Resources

Acquiring new knowledge

Accounting policies for exploration and evaluation

Expenditures related to development of mineral resources are not recognized as exploration

Changes in accounting policies

Classification of exploration and evaluation assets

Reclassification of exploration and evaluation assets

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