ifrs 6: exploration for and evaluation of mineral resources

OVERVIEW


IFRS 6 specifies the accounting treatment, recognition, and measurement of the expenses incurred on the exploration and evaluation of mineral resources.


SCOPE


IFRS 6 applies to the expenditures that are incurred on the exploration and evaluation of mineral resources only. It does not apply:


=> To expenditures incurred before the exploration and evaluation of mineral resources take place. This means that expenditure is incurred before obtaining the legal rights for exploration.

=> After the technical feasibility and visibility that is commercially viable and demonstrable.

Key Takeaway Points



=> IFRS 6 specifies the rules for the accounting treatment of all those activities that are concerned and related to the exploration of mineral resources and evaluation assets.


=> IFRS 6 specifies that the entity shall measure the mineral resources and evaluation assets at cost when initially recognized while subsequently, it shall measure the minerals resources and evaluation assets either at the cost model or the revaluation model.


=> Mineral resources and evaluation assets can be either classified as tangible assets or intangible assets as per the requirements of IAS 16 – Property, Plant, and equipment and IAS 38 – Intangible assets.


=> An entity is required to identify the impairment loss on the mineral resources and evaluation assets when there is an indication of impairment loss. Any impairment loss on such assets shall be recorded as impairment loss in the statement of profit or loss.



RECOGNITION AND MEASUREMENT


Exploration and all the evaluation assets shall be measured at cost at the initial recognition. Following are the expenditures that are included in the initial cost of the exploration and evaluation assets:


=> The cost of acquisition to explore the minerals.

=> Topographical and geographical studies to explore the minerals and evaluate such assets.

=> Exploratory drilling expenses

=> Trenching expenditures

=> Sampling expenditures

=> Expenditures incurred on the technical feasibility to explore the minerals and evaluate such assets


After the initial recognition of the mineral resources, an entity shall measure the mineral resources and evaluation assets either at the cost model or the revaluation model and such models shall be dealt with as per IAS 16.


The mineral and evaluation assets shall either be classified as tangible assets or intangible assets as depends on the nature of acquired resources and assets. Following are the example of tangible and intangible mineral resources and evaluation assets.


=> Tangible assets are the drilling rigs and vehicles used in the direct exploration of mineral resources.

=> Intangible assets are the exploration and drilling rights of mineral resources.


DE RECOGNITION


The mineral resources shall be ceased to classify as assets when the right to explore the mineral resources are expired or the project is complete. However, an entity shall measure the mineral resources and evaluation assets for the impairment testing and any impairment loss shall be recorded as impairment loss in the statement of profit or loss as per IAS 36 – Impairment loss.


PRESENTATION


The entity shall present the exploration of minerals and evaluation assets as per the IAS 16 and as per IAS 38 either tangible assets or intangible assets as discussed above.


DISCLOSURE


IFRS 6 requires the following disclosures at minimum in respect of the mineral resources and evaluation assets:


=> The accounting policies adopted for the accounting treatment of expenditure incurred on the exploration of mineral resources and evaluation assets and the recognition criteria for the recognition of mineral resources as tangible and intangible assets shall be disclosed.

=>The amount of income, expenses, assets and liabilities, and operating investing cash flows arising due to the exploration of mineral resources.