Question 1

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

Accepted Answer

All of the options are correct. The interpretation proposes that surface mine stripping costs would be capitalised during the production phase if certain criteria are met. This asset would be referred to as a stripping activity asset and would initially be recognised at cost plus directly attributable overhead costs.

Question 2

Which costs are within the scope of AASB 6?
A) Pre-exploration and evaluation phase expenditure
B) Exploration and evaluation phase expenditure
C) Development phase expenditure
D) All of the above

Accepted Answer

AASB 6 specifically deals with exploration and evaluation of mineral resources, therefore only expenditure related to this phase (option B) is within the scope of this accounting standard. Options A and C are not directly related to exploration and evaluation and are outside the scope of AASB 6.

Question 3

The obligation to record a provision for removal and restoration costs arising from mining exploration and evaluation arises through the application of:
A) AASB 6
B) AASB 137
C) The Framework
D) IFRIC 1

Accepted Answer

AASB 137 deals with provisions, contingent liabilities, and contingent assets, which includes obligations for removal and restoration costs.

Question 4

Mineral resources are specifically excluded from the scope of which of the following standards?
I AASB 102 Inventories
II AASB 116 Property, plant & equipment
III AASB 118 Revenue
IV AASB 138 Intangible assets
A) I and III only
B) II and IV only
C) II, III and IV only
D) I, II, III and IV

Accepted Answer

The answer of Mineral resources are specifically excluded from the...

Question 5

Which of the following methods is the least applied method to account for exploration and evaluation costs?
A) the area of interest method
B) the successful efforts method
C) the appropriation method
D) the full cost method

Accepted Answer

The appropriation method is the least applied method to account for exploration and evaluation costs. This method allows companies to capitalize only successful exploration and evaluation costs, while expensing unsuccessful attempts. This is unlike the full cost method, which capitalizes all exploration and evaluation costs, and the successful efforts method, which expenses all exploration and evaluation costs. The area of interest method is not a commonly used accounting method for exploration and evaluation costs.

Question 6

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 $\quad$E&E asset$\quad$$\quad$$\mathrm { xx }$
CR $\quad$E&E expense$\quad$$\quad$$\mathrm { xx }$
B) DR $\quad$E&E expense$\quad$$\quad$$\mathrm { xx }$
CR $\quad$Provision for removal and restoration$\quad$$\mathrm { xx }$
C) DR $\quad$Removal and restoration expense$\quad$$\quad$$\mathrm { xx }$
CR$\quad$ E\&E asset$\quad$$\quad$$\mathrm { xx }$
D)DR $\quad$E&E asset$\quad$$\quad$$\quad$$ \mathrm{xx} $
$ \mathrm{CR} $ $\quad$Provision for removal and restoration$\quad$$\quad$$ \mathrm{xx} $

Accepted Answer

The correct entry to record an obligation for removal and restoration incurred during the exploration and evaluation phase of a mining project involves debiting the E&E asset and crediting a provision for removal and restoration. This reflects the increase in the asset's value due to the future obligation and recognizes the liability for removal and restoration.

Question 7

The scope of AASB 6 is limited to:
A) Exploration and evaluation expenditures
B) Pre-exploration, exploration and evaluation expenditures
C) Exploration, evaluation and development expenditures
D) Pre-exploration, exploration, evaluation and development expenditures

Accepted Answer

AASB 6 only relates to exploration and evaluation expenditures, as stated in the standard's title - "Exploration for and Evaluation of Mineral Resources". The other options include development expenditures, which fall under different accounting standards.

Question 8

Which of the following methods is inconsistent with historical cost accounting?
A) the area of interest method
B) the successful efforts method
C) the appropriation method
D) the full cost method

Accepted Answer

The appropriation method is inconsistent with historical cost accounting because it involves allocating costs based on budgeted figures or forecasts rather than recording assets and liabilities at their original purchase price or cost, which is a fundamental principle of historical cost accounting.

Question 9

AASB 6 Exploration for and Evaluation of Mineral Resources was issued by the AASB in:
A) 2000
B) 2004
C) 2006
D) 2007

Accepted Answer

AASB 6 was issued by the Australian Accounting Standards Board (AASB) in 2004.

Question 10

Which of the following methods involves capitalizing exploration and evaluation costs using a larger cost centre than an area of interest such as a country of region?
A) the area of interest method
B) the successful efforts method
C) the appropriation method
D) the full cost method

Accepted Answer

The full cost method involves capitalizing exploration and evaluation costs using a larger cost centre than an area of interest such as a country or region. This method allows all exploration and evaluation costs to be capitalized, regardless of whether or not they lead to the discovery of reserves. It is often used by companies with a high level of exploration activity and uncertain outcomes.

Question 11

The majority of an entity's obligations for removal and restorations costs are incurred during which phase of a project?
A) exploration phase
B) technical feasibility phase
C) development phase
D) evaluation phase

Accepted Answer

The development phase is when the majority of activities related to construction and installation occur, and therefore, most of the removal and restoration costs are incurred during this phase. The exploration phase involves initial investigations, and the technical feasibility phase involves determining if the project is technically and economically viable. The evaluation phase is the final stage of a project where the performance is assessed.

Question 12

Most large oil and gas companies use which of the following methods to account for exploration and evaluation costs?
A) the area of interest method
B) the successful efforts method
C) the appropriation method
D) the full cost method

Accepted Answer

The answer of Most large oil and gas companies use...

Question 13

Which of the following statements is correct?
A) The AASB extractive industries project currently underway excludes disclosure requirements from its scope
B) AASB 6 was issued by the AASB as an interim measure pending the completion of a comprehensive project dealing with accounting for the extractive industries
C) The AASB extractive industries project currently underway proposed the removal of the 'unit of account' concept in accounting for E&E assets
D) AASB 6 was issued by the AASB as a result of their recent comprehensive extractive industries project

Accepted Answer

AASB 6 was issued by the AASB as an interim measure pending the completion of a comprehensive project dealing with accounting for the extractive industries. The other statements are incorrect as the AASB extractive industries project currently underway includes disclosure requirements in its scope, proposes the retention of the 'unit of account' concept in accounting for E&E assets, and was not the reason behind the issuance of AASB 6.

Question 14

AASB 6 requires disclosure of which of the following?
A) accounting policies relating to pre-exploration costs
B) financing cash flows relating to E&E activities
C) impairment write-downs made on E&E assets
D) accounting policies relating to E&E assets

Accepted Answer

The answer of AASB 6 requires disclosure of which of...

Question 15

In the context of AASB 6, E&E stands for:
A) evaluation and extraction
B) exploration and evaluation
C) extraction and exploration
D) exploration and expenditure

Accepted Answer

E&E in the context of AASB 6 stands for Exploration and Evaluation. This refers to activities aimed at discovering mineral resources, determining their commercial viability, and assessing the feasibility of extracting them. AASB 6 provides guidelines for accounting and reporting of costs incurred during the exploration and evaluation stage.

Question 16

The journal entry required to recognise depreciation on a drilling rig that is being used in the exploration phase of a mining project is:
A) DR $\quad$Depreciation expense - drilling rig $\quad$$ \quad \mathrm{xx} $ 
$ \mathrm{CR} $$\quad$ Accumulated depreciation - drilling rig$\quad$ $ \mathrm{xx} $
B) DR Intangible E&E asset$\quad$$\quad$$\quad$$\mathrm { xx }$
CR Accumulated depreciation - drilling rig$\quad$$\quad$$\mathrm { xx }$.
C) DR Intangible E&E asset$\quad$$\quad$$\quad$$\mathrm { xx }$
CR Accumulated depreciation - drilling rig$\quad$$\quad$$\mathrm { xx }$..
D) $\begin{array} { l l l } 
\text { DR } & \text { Intangible E\&E asset } & \mathrm { xx } \
& \mathrm { CR } \quad \text { Depreciation expense - drilling rig } & \mathrm { xx } \
\end{array}$

Accepted Answer

The answer of The journal entry required to recognise depreciation...

Question 17

Which of the following are included in AASB 6 as factors indicating the E&E assets may be impaired?
I 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
II where there is no budget or plan for the incurrence of further substantial E&E expenditure in the specific area
III 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
IV 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
A) I, II and III
B) I, II and IV
C) I, III and IV
D) II, III and IV

Accepted Answer

AASB 6 includes factors such as expired exploration rights, no further budget for E&E expenditure, and discontinuation of E&E activities due to lack of commercially viable discoveries as indicators of potential impairment.

Question 18

Which of the following methods best reflects the traditional concept of an asset?
A) the area of interest method
B) the successful efforts method
C) the appropriation method
D) the full cost method

Accepted Answer

The answer of Which of the following methods best reflects...

Question 19

Which of the following is NOT included as part of the initial cost of exploration and evaluation assets?
A) exploratory drilling
B) miming acquisition rights
C) trenching
D) pre-exploration survey fees

Accepted Answer

Pre-exploration survey fees are not included as part of the initial cost of exploration and evaluation assets. However, exploratory drilling, mining acquisition rights, and trenching are typically included as part of the initial cost.

Question 20

Which of the following statements in relation to assessing E&E assets for impairment is correct?
A) The level at which and E&E asset is tested for impairment may consist of one or more cash-generating units
B) AASB 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.
C) AASB 6 allows E&E assets to be tested for impairment at the individual asset level
D) AASB 6 does not allow the reversal of impairment write-downs made against E&E assets

Accepted Answer

E&E assets are tested for impairment at the level of cash-generating units, which may consist of one or more units.

Quiz 17: Accounting for Mineral Resources

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:

Which costs are within the scope of AASB 6?

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

Mineral resources are specifically excluded from the scope of which of the following standards? I AASB 102 Inventories II AASB 116 Property, plant & equipment III AASB 118 Revenue IV AASB 138 Intangible assets

Which of the following methods is the least applied method to account for exploration and evaluation costs?

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

The scope of AASB 6 is limited to:

Which of the following methods is inconsistent with historical cost accounting?

AASB 6 Exploration for and Evaluation of Mineral Resources was issued by the AASB in:

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

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

Most large oil and gas companies use which of the following methods to account for exploration and evaluation costs?

Which of the following statements is correct?

AASB 6 requires disclosure of which of the following?

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

The journal entry required to recognise depreciation on a drilling rig that is being used in the exploration phase of a mining project is:

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

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

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