IFRS 6: Exploration and Evaluation Standards

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Questions and Answers

What is the main focus of IFRS 6?

Exploration for and evaluation of mineral resources (correct)

Valuation of intangible assets

Recognition of financial instruments

Accounting for property leases

Which aspect does IFRS 6 primarily address regarding exploration and evaluation assets?

Revenue recognition

Foreign currency translation

Tax implications

Measurement at recognition (correct)

What does IFRS 6 provide a temporary exemption from?

Financial statement disclosures

IAS 8 paragraphs 11 and 12 (correct)

IFRS 15 revenue standards

All IFRS standards

Which of the following is NOT included in the elements of cost of exploration and evaluation assets according to IFRS 6?

Administrative overhead costs Signup and view all the answers

According to IFRS 6, what should be specified regarding impairment?

The level at which assets are assessed for impairment Signup and view all the answers

What is the effective date for the implementation of IFRS 6 as issued?

2004 Signup and view all the answers

What type of provisions does IFRS 6 outline?

Transitional provisions Signup and view all the answers

What does Appendix A of IFRS 6 primarily define?

Defined terms related to the standard Signup and view all the answers

What must an entity do when recognizing exploration and evaluation assets according to IAS 8?

Apply paragraph 10 of IAS 8. Signup and view all the answers

Which of the following expenditures can be included in the initial measurement of exploration and evaluation assets?

Geological studies. Signup and view all the answers

What is the primary basis for measuring exploration and evaluation assets?

Cost incurred during exploration. Signup and view all the answers

What types of studies are mentioned as potential inclusions for exploration and evaluation assets?

Geophysical studies. Signup and view all the answers

Which of these expenditures is NOT allowed to be recognized as exploration and evaluation assets?

Development costs. Signup and view all the answers

What must an entity consider when determining which expenditures are recognized as exploration and evaluation assets?

The degree of association with specific mineral resources. Signup and view all the answers

Which financial reporting framework provides guidance on the recognition of assets arising from development?

Conceptual Framework for Financial Reporting. Signup and view all the answers

What is the exemption granted to entities regarding IAS 8 when accounting for exploration and evaluation assets?

Exemption from following authoritative requirements. Signup and view all the answers

What must an entity demonstrate to justify changing its accounting policies for exploration and evaluation expenditures?

The change increases the reliability and relevance of financial statements. Signup and view all the answers

Which model can an entity apply after recognizing exploration and evaluation assets?

The cost model or the revaluation model. Signup and view all the answers

How should exploration and evaluation assets be classified?

As tangible or intangible based on the nature of assets acquired. Signup and view all the answers

Which of the following are considered intangible exploration and evaluation assets?

Drilling rights. Signup and view all the answers

What is true regarding the consumption of tangible assets in developing intangible assets?

The consumption amount becomes part of the cost of the intangible asset. Signup and view all the answers

Which criterion is crucial for judging the relevance and reliability of financial statements during policy changes?

The criteria from IAS 8. Signup and view all the answers

What must an entity ensure when applying the revaluation model to exploration and evaluation assets?

It should be consistent with the classification of assets. Signup and view all the answers

What type of obligations does IAS 37 address regarding exploration and evaluation?

Obligations for removal and restoration incurred during exploration. Signup and view all the answers

What is the primary objective of IFRS 6?

To specify the financial reporting for the exploration for and evaluation of mineral resources. Signup and view all the answers

Which of the following is NOT required by IFRS 6?

Detailed reporting on all operational activities of the entity. Signup and view all the answers

When must an entity apply IFRS 6?

When it has obtained legal rights to explore a specific area. Signup and view all the answers

What should entities assess according to IFRS 6?

Exploration and evaluation assets for impairment. Signup and view all the answers

Which expenditures are excluded from the application of IFRS 6?

Expenditures incurred before obtaining legal exploration rights. Signup and view all the answers

What additional resource should be consulted when applying IFRS 6?

The Preface to International Financial Reporting Standards. Signup and view all the answers

According to IFRS 6, what must accompanying disclosures help users understand?

The amounts, timing, and certainty of future cash flows from recognized assets. Signup and view all the answers

Which standard governs the measurement of impairment for assets recognized under IFRS 6?

IAS 36 – Impairment of Assets. Signup and view all the answers

What is the earliest date that an entity can apply the amendments made by the Amendments to References to the Conceptual Framework in IFRS Standards?

1 January 2020 Signup and view all the answers

What should an entity do if it finds that retrospective application of IFRS 6 is impracticable?

Apply the amendment with reference to specific paragraphs of IAS 8. Signup and view all the answers

What is required if it is impracticable to apply a particular requirement to comparative information before a specific date?

The entity must disclose that fact. Signup and view all the answers

Which of the following describes exploration and evaluation expenditures as defined in IFRS 6?

Costs incurred before the technical feasibility and commercial viability of extracting a mineral resource are recognized as assets. Signup and view all the answers

According to IFRS 6, which of the following is NOT included in the definition of exploration for and evaluation of mineral resources?

Post-extraction analysis of economic performance. Signup and view all the answers

What standard must be followed when applying amendments to IFRS 6 retrospectively?

IAS 8 Signup and view all the answers

What type of information must an entity disclose if it applies amendments retrospectively but finds it impracticable?

The nature of the impracticality encountered. Signup and view all the answers

Which of the following statements best describes 'impracticable' as per IAS 8?

It refers to demands that cannot be met without excessive effort or cost. Signup and view all the answers

When should an exploration and evaluation asset be reclassified?

When its technical feasibility and commercial viability are demonstrable. Signup and view all the answers

What must occur before reclassifying an exploration and evaluation asset?

An impairment assessment must be conducted. Signup and view all the answers

Which circumstance would NOT indicate that an exploration and evaluation asset should be tested for impairment?

The asset has been active for five consecutive years. Signup and view all the answers

What is the first step when assessing exploration and evaluation assets for impairment?

Check for expiry of exploration rights. Signup and view all the answers

Which of the following would likely signify that an exploration and evaluation asset is recoverable?

There is planned expenditure for further exploration. Signup and view all the answers

According to the guidelines for exploration and evaluation assets, which of the following findings require impairment testing?

The right to explore will not be renewed soon. Signup and view all the answers

What alternative standard should be referenced for impairment of exploration and evaluation assets according to the provided guidelines?

Paragraph 20 of the relevant IFRS. Signup and view all the answers

What should an entity disclose if the carrying amount of an exploration and evaluation asset exceeds its recoverable amount?

The resulting impairment loss in accordance with IAS 36. Signup and view all the answers

Study Notes

IFRS 6: Exploration for and Evaluation of Mineral Resources

IFRS 6 was issued by the International Accounting Standards Board in December 2004.
This standard outlines the financial reporting for exploration and evaluation of mineral resources.
Other standards have made minor adjustments to IFRS 6, including amendments related to the Conceptual Framework.

Objective of IFRS 6

The objective is to specify the financial reporting for exploration and evaluation of minerals.
It requires limited improvements to existing accounting practices for exploration and evaluation expenditures.
Entities must assess exploration and evaluation assets for impairment using IAS 36 guidelines, and provide disclosures about the economic significance of these activities in financial statements.

Scope of IFRS 6

This standard applies to exploration and evaluation expenditures incurred by an entity.
It does not cover other aspects of accounting related to exploration or evaluation activities.
The standard does not apply to expenditures before legal rights to explore are obtained or after the technical feasibility and commercial viability of extraction is established.

Recognition of Exploration and Evaluation Assets

Exploration and evaluation assets are initially recognized at cost.
An entity needs to define an accounting policy to specify which expenditures are considered exploration and evaluation assets and apply consistently.
Examples of expenditures include rights to explore, topographical/geological/geochemical/geophysical studies, drilling, trenching, sampling, and activities related to evaluating viability.
Expenditures related to the development of mineral resources aren't recognized as exploration and evaluation assets.

Measurement of Exploration & Evaluation Assets

Exploration and evaluation assets are initially measured at cost.
An entity needs to define an accounting policy to specify which expenditure is relevant and apply this policy consistently.
The policy considers the extent of association with specific mineral resources.
Post-recognition, an entity adopts either the cost model (or revaluation model as defined by IAS 16 or IAS 38) consistently with the asset's classification.

Changes in Accounting Policies

Entities can change accounting policies for exploration and evaluation expenditures if this enhances relevance and reliability of the financial statements.
Relevant changes must improve the financial statements' relevance to users while not jeopardizing reliability.
IAS 8 guidelines are used to judge appropriateness of changes.

Presentation and Classification of Assets

Classification is as tangible or intangible, depending on the asset's nature (e.g., drilling rights are intangible, while vehicles are tangible).
Exploration & evaluation assets are reclassified when the extraction is technically feasible and commercially viable.

Impairment

Exploration and evaluation assets are assessed for impairment if facts/circumstances suggest their carrying amount may exceed the recoverable amount.
IAS 36 rules are primarily used for measurement and disclosure, except when specifically indicated otherwise.

Specifying the Level for Impairment Assessment

An entity defines an accounting policy to allocate assets to cash-generating units or groups for impairment assessment.
Such units should not exceed an operating segment as defined by IFRS 8.

Disclosure Requirements

Entities need to disclose information about exploration & evaluation activities, including accounting policies, amounts for assets, liabilities, income/expenses, and operating/investing cash flows.

Effective Date

IFRS 6 typically applies to fiscal periods starting on or after January 2006.
Entities can adopt early, but need to disclose this.

Transitional Provisions

If applying certain provisions of paragraph 19 is difficult or expensive related to prior periods, an entity must disclose this.

Appendix A: Defined Terms

Includes definitions for key terms related to exploration, evaluation, and mineral resources, clarifying their use within IFRS 6.

Appendix B: Amendments to Other IFRSs

Details amendments to other IFRS standards introduced at the time of IFRS 6 publication.

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Description

This quiz covers the key aspects of IFRS 6, issued by the International Accounting Standards Board for financial reporting on mineral resources. Explore the objectives, scope, and requirements for assessing assets under this standard. Understand the implications for disclosure and impairment assessments in financial statements.