Deck 34: Accounting for Mineral Resources

Question 1

E&E assets are required to be tested for impairment:

A) at least annually.
B) when there is an indication that the assets may be impaired.
C) prior to reclassification at the end of E&E activities.
D) only where commercially feasible reserves are not found through the E&E activities.

Answer 1

B

Question 2

Which of the following statements is correct in relation to the use of the revaluation model to subsequently account for E&E assets?

A) The revaluation model can only be used to account for tangible E&E assets.
B) The revaluation model can be used for tangible E&E assets where the fair value can be reliably measured.
C) The revaluation model can be used for intangible E&E assets where the fair value can be reliably measured.
D) The revaluation model can be used for tangible E&E assets only where there is an active market for the assets.

Answer 2

B

Question 3

AASB 6/IFRS 6 is an example of:

A) a not-for-profit standard.
B) an industry specific standard.
C) a standard applicable to disclosing entities.
D) a differential reporting standard based on size based criteria.

Answer 3

B

Question 4

Accounting policies for exploration and evaluation costs should be determined in accordance with which accounting standard?

A) AASB 6.
B) AASB 8.
C) AASB 106.
D) AASB 108.

Question 5

Which costs are within the scope of AASB 6?

A) Development phase expenditure.
B) Exploration and evaluation phase expenditure.
C) Pre-exploration and evaluation phase expenditure.
D) Both exploration and development phase expenditure.

Question 6

In the context of AASB 6/IFRS 6, E&E stands for:

A) evaluation and extraction.
B) extraction and exploration.
C) exploration and evaluation.
D) exploration and expenditure.

Question 7

Which of the following statements in relation to assessing E&E assets for impairment is correct?

A) AASB 6/IFRS 6 allows E&E assets to be tested for impairment at the individual asset level.
B) AASB 6/IFRS 6 does not allow the reversal of impairment write-downs made against E&E assets.
C) The level at which and E&E asset is tested for impairment may consist of one or more cash-generating units.
D) AASB 6/IFRS 6 allows the cash-generating unit or group of cash-generating units to which an E&E asset is allocated to be larger than a segment determined in accordance with IFRS 8.

Question 8

As per AASB 6 Exploration for and Evaluation of Mineral Resources, mineral resources include:
I. Oil
II. Minerals
III. Natural gas
IV. Non-regenerative resources

A) I, II and III only
B) I, III and IV only
C) II, III and IV only
D) I, II, III and IV

Question 9

Which method of accounting for exploration and evaluation costs is used by most large oil and gas companies?

A) The full cost method.
B) The appropriation method.
C) The area of interest method.
D) The successful efforts method.

Question 10

The obligation to record a provision for removal and restoration costs arising from mining exploration and evaluation arises through the application of:

A) IFRIC 1.
B) AASB 6.
C) AASB 137.
D) The Framework.

Question 11

The entry to record an obligation for removal and restoration incurred during the exploration and evaluation (E&E) phase of a mining project is:

A) DR E&E asset; CR E&E expense
B) DR Removal and restoration expense; CR E&E asset
C) DR E&E asset; CR Provision for removal and restoration
D) DR E&E expense; CR Provision for removal and restoration

Question 12

Which of the following methods best reflects the traditional concept of an asset?

A) The full cost method.
B) The appropriation method.
C) The area of interest method.
D) The successful efforts method.

Question 13

Which of the following is not included as part of the initial cost of exploration and evaluation assets?

A) Trenching.
B) Geophysical studies.
C) Mining acquisition rights.
D) Pre-exploration survey fees.

Question 14

Accounting for the acquisition of equipment to be used in the extraction of mineral resources is covered by:

A) AASB 6 Exploration for and Evaluation of Mineral Resources.
B) AASB 108 Accounting Policies, Changes in Accounting Estimates and Errors.
C) AASB 116 Property, Plant and Equipment.
D) AASB 138 Intangible Assets.

Question 15

The majority of an entity's obligations for removal and restorations costs are incurred during which phase of a project?

A) Evaluation phase.
B) Exploration phase.
C) Development phase.
D) Technical feasibility phase.

Question 16

Which of the following methods best reflects the volatility inherent in E&E activities?

A) The full cost method.
B) The appropriation method.
C) The area of interest method.
D) The successful efforts method.

Question 17

Which of the following are included in AASB 6/IFRS 6 as factors indicating the E&E assets may be impaired?
I. Where there is no budget or plan for the incurrence of further substantial E&E expenditure in the specific area.
II. Whether the exploration rights for the specific area have expired or are expected to expire in the near future and there is no expectation of renewal.
III. Where the entity has established that the cost of the E&E asset is unlikely to be recovered in full from the successful development or sale of the specific area.
IV. Where the entity had decided to discontinue E&E activities in the specific area on the basis that such activities have not led to the discovery of commercially viable quantities of mineral resources.

A) I, II and IV.
B) I, II and III.
C) I, III and IV.
D) II, III and IV.

Question 18

Subsequent to initial recognition, E&E assets are required to be measured:

A) under the cost model.
B) under the revaluation model.
C) at the lower of the cost and fair value.
D) either under the cost model or revaluation model.

Question 19

The scope of AASB 6 is specifically limited to accounting for:

A) exploration and evaluation expenditures.
B) exploration, evaluation and development expenditures.
C) pre-exploration, exploration and evaluation expenditures.
D) pre-exploration, exploration, evaluation and development expenditures.

Question 20

Which of the following methods involves capitalising exploration and evaluation costs using a larger cost centre than an area of interest such as a country or region?

A) The full cost method.
B) The appropriation method.
C) The area of interest method.
D) The successful efforts method.

Question 21

AASB 6/IFRS 6 requires disclosure of which of the following?

A) Accounting policies relating to E&E assets.
B) Impairment write-downs made on E&E assets.
C) Financing cash flows relating to E&E activities.
D) Accounting policies relating to pre-exploration costs.

Question 22

Which of the following is not within the scope of the IASB extractive activities project?

A) The definition of reserves and resources.
B) Disclosure requirements for reserves and resources.
C) Measurement of reserves and resources on initial recognition as an asset.
D) Whether to expense or capitalise costs recognised after recognition of reserves and resources as assets.

Question 23

Which of the following E&E costs would be classified as intangibles?
I. Drilling rights.
II. Exploration licenses.
III. Equipment inspection costs.
IV. Capitalised consumable costs.

A) I, II and IV.
B) I, II and III.
C) I, III and IV.
D) II, III and IV.

Question 24

The IFRS Interpretations Committee issued an interpretation in relation to the accounting for surface mine stripping costs (i.e. removal of rocks, soil and other waste materials to access the relevant mineral deposits) incurred during the production phase. The interpretation proposes:

A) this asset would be referred to as a stripping activity asset ('the asset').
B) the asset would initially be recognised at cost plus directly attributable overhead costs.
C) waste removal (stripping) costs would be capitalised during the production phase of a surface mine, if certain criteria are met.
D) all of the options are correct.