Question 1

Disclosures related to restoration costs:

Accepted Answer

The answer of Disclosures related to restoration costs:
...

Question 2

What is the effect of the above transactions on the balance sheet and on the income statement of Berrill Ltd using the full cost method?

Accepted Answer

The answer of What is the effect of the above...

Question 3

Which of the following statement(s) is/are correct?

Accepted Answer

The answer of Which of the following statement(s) is/are correct?
...

Question 4

On 1 July 2002 Honies Ltd commenced an operation to extract iron ore from two sites believed to have potential in Northern Australia. During the financial period ended 30 June 2003 the following costs were incurred.

The Eastern site is found not to be economically viable and is abandoned in the second half of 2003. Development costs of $10 million are incurred at the Western site. The reserves at this site are estimated to be 90,000 tonnes. The market price is currently $900 per tonne. In the financial year ended 30 June 2004, 10,000 tonnes are extracted with associated production costs of $1 million and 8,000 tonnes are sold at the market price. There are no effective limits on the time over which Honies Ltd may extract the ore. What are the journal entries to record the relevant transactions and events for 2003 and 2004 using the full-cost method (round to the nearest $10,000)?

Accepted Answer

- Journal entries for 2003:
1) Debit Development costs - Eastern site $25,000,000
Credit Cash $25,000,000 (to record exploration cost)
2) Debit Development costs - Western site $10,000,000
Credit Cash $10,000,000 (to record development cost)
3) Debit Accumulated losses $35,000,000
Credit Development costs - Eastern site $25,000,000
Credit Development costs - Western site $10,000,000 (to record write-off of abandoned site costs)
- Journal entries for 2004:
4) Debit Production costs expense $1,000,000
Credit Cash $1,000,000 (to record production costs)
5) Debit Inventory $7,200,000
Credit Revenue $7,200,000 (to record sale of 8,000 tonnes of iron ore at market price)
Note: The full-cost method requires all exploration, development and production costs to be capitalized as an inventory asset until the commodity is sold. The inventory is then recorded at cost (production cost plus development cost per tonne) when sold.

Question 5

Research conducted in Australia suggests that only a limited number of companies involved in the extractive industries choose to revalue their reserves to their expected fair value. Reasons suggested by the researchers for the low number of revaluing firms include:

Accepted Answer

The answer of Research conducted in Australia suggests that only...

Question 6

What is the effect of the above transactions on the balance sheet and on the income statement of Berrill Ltd using the area-of-interest method?

Accepted Answer

The answer of What is the effect of the above...

Question 7

On 1 April 2008, Ulladulla Mining Ltd assessed that its Mollymook area of interest contained economically recoverable reserves of 50,000 ounces of gold. On the same day the entity installed the following assets:

The above assets were ready for use on 1 July 2008. Ulladulla Mining Ltd expects to extract the entire reserves in 5 years. For the year ending 30 June 2009 the entity had extracted 5,000 ounces of gold.
What is the total depreciation/amortisation expense for the capitalised development costs for the year ending 30 June 2008?

Accepted Answer

The total depreciation/amortisation expense for the capitalised development costs is calculated using the units-of-production method.

First, we need to calculate the depreciation rate per unit of production: 
Depreciation rate per unit = (capitalised development costs - salvage value) / total units of production 
= ($10,800,000 - $900,000) / 50,000 ounces 
= $198 per ounce

For the year ending 30 June 2009, the entity extracted 5,000 ounces of gold. Therefore, the depreciation/amortisation expense for the year is: 
Depreciation/amortisation expense = depreciation rate per unit * units extracted during the year 
= $198/ounce * 5,000 ounces 
= $990,000

However, the assets were ready for use on 1 July 2008, so the depreciation/amortisation expense for the year ending 30 June 2009 is the portion of the year from 1 July 2008 to 30 June 2009: 
Depreciation/amortisation expense = $990,000 * (365 days / 365 days) 
= $990,000

Therefore, the total depreciation/amortisation expense for the capitalised development costs for the year ending 30 June 2008 is $990,000. None of the given answers match this value, but the closest option is B, which is $483,750.

Question 8

Which of thefollowing expenditures is not an example of expenditures that form part of the initial cost of exploration and evaluation assets?

Accepted Answer

Construction of roads and tunnels to the mine site is considered as part of the initial cost of development of a mine, not exploration and evaluation assets.

Question 9

AASB 6 requires the separate disclosure of:

Accepted Answer

AASB 6 requires all of the given disclosures to be separately disclosed. Therefore, option E is the correct answer.

Question 10

Which of the following statement(s) is/are correct?

Accepted Answer

The answer of Which of the following statement(s) is/are correct?
...

Question 11

Which of the following statements is not in accordance with AASB 6 "Exploration for and Evaluation of Mineral Resources"?

Accepted Answer

AASB 6 allows entities to change their accounting policies for exploration and evaluation expenditures if the change makes the financial report more relevant to the economic decision-making needs of users.

Question 12

AASB 6 requires disclosure of information that identifies and explains the amounts recognised in the financial report arising from the exploration for and evaluation of mineral resources. To comply with this prescription, required disclosures include:

Accepted Answer

AASB 6 requires disclosure of both the accounting policies for exploration and evaluation expenditures and the amount of assets, liabilities, income and expense and operating and investing cash flows arising from the exploration for and evaluation of mineral resources. Therefore, option E is the correct choice. Option A is only partially correct, as it only provides one aspect of the required disclosures. Option B is incorrect, as restoration expense is not directly related to exploration and evaluation activities but rather to the ultimate extraction of the resource. Option C is only partially correct, as it only provides one aspect of the required disclosures. Option D is incorrect, as it is too broad and encompasses all answers without specifying which ones are relevant to the requirements of AASB 6.

Question 13

Since the late 1980s, an increasing number of minerals and energy companies are making environmental and social disclosures. The majority of these are voluntary; however, there is a requirement to disclose:

Accepted Answer

According to the Australian Securities and Investments Commission (ASIC), companies are required to disclose their performance in relation to significant environmental regulation in their Directors' Report if they are subject to any particular and significant environmental regulation under a law of the Commonwealth or of a State or Territory. This is a legal requirement and not voluntary. Therefore, option C is the correct choice.

Question 14

Which of the following costs is not an element of cost of exploration for and evaluation of mineral assets in AASB 6"Exploration for and Evaluation of Mineral Resources"?

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The answer of Which of the following costs is not...

Question 15

On 1 July 2002 Brumbles Ltd commenced an operation to extract iron ore from two sites believed to have potential in Northern Australia. During the financial period ended 30 June 2003 the following costs were incurreD.

The Eastern site is found not to be economically viable and is abandoned in the second half of 2003. Development costs of $10 million are incurred at the Western site. The reserves at this site are estimated to be 90,000 tonnes. The market price is currently $700 per tonne. In the financial year ended 30 June 2004, 10,000 tonnes are extracted with associated production costs of $1 million and 8,000 tonnes are sold at the market price. There are no effective limits on the time over which Brumbles Ltd may extract the ore. What are the journal entries to record the relevant transactions and events for 2003 and 2004 using the method required by AASB 1022 (round to the nearest $10,000)?

Accepted Answer

The answer of On 1 July 2002 Brumbles Ltd commenced...

Question 16

Which of the following statements is not in accordance with AASB 6 "Exploration for and Evaluation of Mineral Resources"?

Accepted Answer

The answer of Which of the following statements is not...

Question 17

If an area-of interest is abandoned, which of the following actions is consistent with AASB 6 "Exploration for and Evaluation of Mineral Resources"?

Accepted Answer

According to AASB 6, if an area-of-interest is abandoned, the carrying amount of exploration and evaluation assets should be written off and an impairment loss should be recognized. Reclassifying the carrying amount to another area-of-interest is not permitted. While reinstatement of previously written off assets may be permitted if certain conditions are met (such as a significant change in circumstances), it is not relevant in this scenario. The option related to machinery is not relevant to the question.

Question 18

Mirza and Zimmer (1999) found that only a small number of companies were undertaking upward asset revaluations. The reasons for their reluctance to undertake this practice included.

Accepted Answer

The answer of Mirza and Zimmer (1999) found that only...

Question 19

Which of the following activities is within the scope of AASB 6 "Exploration for and Evaluation of Mineral Resources"?

Accepted Answer

AASB 6 "Exploration for and Evaluation of Mineral Resources" deals with the accounting for expenditures incurred in the exploration for and evaluation of mineral resources. Choice D, expenditures incurred in the determination of the technical feasibility and commercial viability of a particular prospect, such as determining the volume and grade of the deposit or field, is within the scope of the standard. Choices A, B, and C are not within the scope of the standard as they deal with expenditures incurred outside of the exploration and evaluation phase. Therefore, the correct answer is D.

Question 20

On 1 April 2008, Ulladulla Mining Ltd assessed that its Mollymook area of interest contained economically recoverable reserves of 50,000 ounces of gold. On the same day the entity installed the following assets:

The above assets were ready for use on 1 July 2008. Ulladulla Mining Ltd expects to extract the entire reserves in 5 years. For the year ending 30 June 2009 the entity had extracted 5,000 ounces of gold.
What is the journal entry to recognise amortisation and depreciation expense of above capitalised developments costs?

Accepted Answer

The answer of On 1 April 2008, Ulladulla Mining Ltd...

Quiz 21: Accounting for the Extractive Industries

Disclosures related to restoration costs:

What is the effect of the above transactions on the balance sheet and on the income statement of Berrill Ltd using the full cost method?

Which of the following statement(s) is/are correct?

Research conducted in Australia suggests that only a limited number of companies involved in the extractive industries choose to revalue their reserves to their expected fair value. Reasons suggested by the researchers for the low number of revaluing firms include:

What is the effect of the above transactions on the balance sheet and on the income statement of Berrill Ltd using the area-of-interest method?

Which of thefollowing expenditures is not an example of expenditures that form part of the initial cost of exploration and evaluation assets?

AASB 6 requires the separate disclosure of:

Which of the following statement(s) is/are correct?

Which of the following statements is not in accordance with AASB 6 "Exploration for and Evaluation of Mineral Resources"?

AASB 6 requires disclosure of information that identifies and explains the amounts recognised in the financial report arising from the exploration for and evaluation of mineral resources. To comply with this prescription, required disclosures include:

Since the late 1980s, an increasing number of minerals and energy companies are making environmental and social disclosures. The majority of these are voluntary; however, there is a requirement to disclose:

Which of the following costs is not an element of cost of exploration for and evaluation of mineral assets in AASB 6"Exploration for and Evaluation of Mineral Resources"?

Which of the following statements is not in accordance with AASB 6 "Exploration for and Evaluation of Mineral Resources"?

If an area-of interest is abandoned, which of the following actions is consistent with AASB 6 "Exploration for and Evaluation of Mineral Resources"?

Mirza and Zimmer (1999) found that only a small number of companies were undertaking upward asset revaluations. The reasons for their reluctance to undertake this practice included.

Which of the following activities is within the scope of AASB 6 "Exploration for and Evaluation of Mineral Resources"?