Question 1

Which of the following would generally be considered a tangible E&E asset?&#10;A) Drilling rights&#10;B) Mining claims&#10;C) Exploratory oil wells&#10;D) None of the above

Accepted Answer

None of the above&#10;

Question 2

Which of the following would be considered an intangible asset?&#10;A) A drilling rig used to create exploratory wells&#10;B) Depreciation expense on a drilling rig used to create exploratory wells&#10;C) A tank used to carry heavy drilling equipment&#10;D) None of the above

Accepted Answer

Depreciation expense is an intangible asset because it is not a physical asset that can be seen or touched. It is a non-physical asset that represents the decrease in value of a physical asset over time.

Question 3

Capitalized E&E assets are initially measured at&#10;A) Historical cost&#10;B) Fair value less costs to sell&#10;C) Fair value&#10;D) Replacement cost

Accepted Answer

Capitalized E&E (Exploration & Evaluation) assets are initially measured at historical cost. This includes costs directly associated with exploration and evaluation activities.

Question 4

IFRS 6 prescribes the financial reporting for expenditures incurred in&#10;A) Pre-exploration activities&#10;B) Exploration activities&#10;C) Development activities&#10;D) Evaluation activities&#10;E) Extraction activities&#10;F) A,B,C,D&#10;G) A,B,D&#10;H) B,C,D,E&#10;I) B,D,E&#10;J) B,E&#10;K) B,D&#10;L) C,E&#10;M) D,E&#10;N) All of the above&#10;

Accepted Answer

This means that IFRS 6 prescribes the financial reporting for expenditures incurred in:
B) Exploration activities
D) Evaluation activities
Exploration activities include the search for mineral resources after the entity has obtained legal rights to explore in a specific area, as well as determining the technical feasibility and commercial viability of extracting the mineral resource.
Evaluation activities refer to the determination of the technical feasibility and commercial viability of extracting the mineral resource, including sampling, drilling, and other activities to evaluate the size, grade, and other pertinent characteristics of the mineral resource.
IFRS 6 does not specifically address pre-exploration, development, extraction, or other operational activities. These are covered by other standards, such as IAS 16 "Property, Plant and Equipment" for development activities and IAS 2 "Inventories" or IAS 16 for extraction activities, depending on the nature of the assets involved.

Question 5

When testing for impairment, several cash-generating units may be combined if&#10;A) The combination is not larger than an operating segment.&#10;B) The units were not previously impaired.&#10;C) The units' exploration efforts have not discovered commercially viable possibilities.&#10;D) There are clear indicators that the carrying amounts of the E&E assets are unlikely to be recovered.

Accepted Answer

The correct answer is A because according to accounting standards, several cash-generating units (CGUs) may be combined for impairment testing if the combination is not larger than an operating segment. This allows for a more practical approach to impairment testing, especially in cases where individual CGUs are too small or interrelated with others within the same operating segment.

Question 6

Unsuccessful E&E expenditures may be capitalized.&#10;A) Always, as prescribed in IFRS 6.&#10;B) When all successful expenditures are also capitalized.&#10;C) When efforts to avoid similar unsuccessful efforts are disclosed in detail.&#10;D) None of the above

Accepted Answer

Unsuccessful Exploration & Evaluation (E&E) expenditures are not automatically capitalized under IFRS 6. The standard allows for flexibility in accounting policies, but unsuccessful expenditures are typically expensed as they are incurred unless they are part of the overall cost of discovering commercially viable resources.

Question 7

An entity should develop a policy for expensing or capitalizing their assets, and be consistent to that policy. There is no set requirement given by IFRS 6.

Accepted Answer

IFRS 6 does not specify a detailed requirement for expensing or capitalizing exploration and evaluation assets, allowing entities to develop their own policies, provided they apply them consistently.

Question 8

Entities must choose between capitalizing all E&E expenditures or no E&E expenditures.

Accepted Answer

Entities have the option to either capitalize or expense Exploration & Evaluation (E&E) expenditures based on their chosen accounting policy, allowing for flexibility rather than a strict requirement to choose one method exclusively.

Question 9

An entity can and should create one standard policy for classifying all exploration and evaluation assets as either tangible or intangible assets.

Accepted Answer

The classification of exploration and evaluation assets as either tangible or intangible depends on the nature of the assets acquired and the specific activities undertaken. Different assets might require different classification based on their substance and the accounting policies adopted by the entity.

Question 10

An entity must classify all E&E assets as separate classes of assets.

Accepted Answer

An entity must classify all E&E assets as separate classes of assets because E&E assets have different characteristics and risks than other types of assets. This classification allows an entity to better manage its E&E assets and to make informed decisions about their use and disposition.

Question 11

Impairment is measured in accordance exclusively with standards laid out in IFRS 6.

Accepted Answer

The answer of Impairment is measured in accordance exclusively with...

Question 12

Intangible E&E assets are commonly revalued under the revaluation model.

Accepted Answer

The answer of Intangible E&E assets are commonly revalued under...

Question 13

Identify the primary concern of entities operating in the extractives sector. Using the Conceptual Framework, explain why this concern is most important.

Accepted Answer

The answer of Identify the primary concern of entities operating...

Question 14

At what point is an asset no longer considered to be an E&E asset?

Accepted Answer

The answer of At what point is an asset no...

Question 15

Give at least two examples of situations or circumstances that would indicate that an entity must test for impairment.

Accepted Answer

The answer of Give at least two examples of situations...

Deck 40: Exploration for and Evaluation of Mineral Resources