Chapter 2 - Mineral Resources Flashcards
What standard covers exploration and evaluation of mineral resources?
IFRS 6
Does expenditure incurred prior to the exploration / evaluation of mineral resources come under IFRS 6?
No. Must relate to exploration / evaluation / technical feasibility / commercial viability.
Does expenditure incurred after the technical feasibility or commercial viability of mineral resources come under IFRS 6?
No. Must relate to exploration / evaluation / technical feasibility / commercial viability.
What is the definition of exploration for and evaluation of mineral resources under IFRS 6 ?
Covers:
- search for mineral resources after entity has obtained the legal right to explore a specific area
- assessment of the technical feasibility and commercial viability of extracting those mineral resources.
What is covered by the term “mineral resources” under IFRS 6 ?
- minerals
- oil
- natural gasses
- other similar non-regenerative resources.
True or false:
Regenerative resources can be covered by IFRS 6 as a mineral resource
False
What are examples of items that are part of the initial measurement of exploration and evaluation assets?
- Acquisition of rights to carry out exploration activities
- Topographical, geological, geochemical and geophysical studies
- Exploratory drilling
- Sampling
Under IFRS 6, where an entity has a policy of recognising exploration and evaluation assets, how should these be measured?
At cost - items must be associated with the mineral resources.
Should development of mineral resources be included in the cost of exploration under IFRS 6?
No.
Should be measured in accordance with IAS 38 (Intangible Assets)
If an entity has an obligation to restore an area after it has explored and extracted minerals, how should this be recognised?
Liability should be recognised in accordance with IAS 37 Provisions, Contingent Liabilities and Contingent Assets.
Once an exploration and evaluation asset has been recognised at cost, how should be the asset then be treated?
Entity can either apply a cost model or move to a revaluation model.
Assets should be classified further either as tangible or intangible.
For exploration and evaluation assets, how should tangible assets be treated?
Depreciated on a systematic basis over its useful life
For exploration and evaluation assets, how should intangible assets be treated?
Amortised over its useful life since it would be unlikely that such an asset would have an indefinite life
When should an exploration and evaluation asset no longer be classified as such?
When the technical feasibility and commercial viability of the asset be demonstrated.
It should be tested for impairment prior to that.
According to IFRS 6, what is a cash generating unit?
The smallest group of assets for which it is possible to separately identify independent cash flows.
When looking at exploration and evaluation assets, which standard should be used in terms of guidance for impairment?
Follow IFRS 6 rather than IAS 36.
IFRS 6 are less onerous with impairment requirements.
How does IFRS 6 deal with impairment for exploration and evaluation assets?
If an impairment is identified, then apply the measurement, presentation and disclosure requirements of IAS 36.
Under IFRS 6, assts should be tested for impairment where there are “facts and circumstances” that should lead to impairment.
Under IFRS 6, what “facts and circumstances” indicate impairment is likely?
- Acquired right to explore is about to expire and not able to be renewed
- Further expenditure to explore or evaluate a mineral right is not budgeted
- Exploration has ceased due to unlikely commercial potential
- Where there is an indication that a site is suitable for development, but it is unclear whether the cost of exploration and evaluation will be recovered through its development or sale
What disclosure requirements occur under IFRS 6?
- Entity’s accounting policy for recognition and management
- Amount of assets, liabilities, income and expense arising from exploration and evaluation resources
- amount of operating and investing cash flows from exploration and evaluation of mineral resources
True or false:
An entity is permitted to allocate exploration and evaluation assets to specific cash-generating units (CGU’s).
True
True or false:
Under IFRS 6, Management cannot complete impairment testing by amalgamating several CGU’s, they must be reviewed separately.
False.
Impairment testing of exploration and evaluation assets may be completed on either individual CGU’s or several CGU’s amalgamated.
