Question 1

Which of the following are included in IFRS 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

Accepted Answer

IFRS 6 includes factors I, II, and III as indicators of potential impairment of exploration and evaluation (E&E) assets.

Question 2

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

Accepted Answer

The obligation to record a provision for removal and restoration costs arising from mining exploration and evaluation arises through the application of IAS 37 – Provisions, Contingent Liabilities and Contingent Assets. This standard requires companies to recognize a provision when there is a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and the amount can be reliably estimated.

Question 3

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

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 4

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

Accepted Answer

Pre-exploration survey fees are typically incurred before the exploration and evaluation phase and are not included in the initial cost of exploration and evaluation assets.

Question 5

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

Accepted Answer

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

Question 6

IFRS 6 requires disclosure of which of the following?

Accepted Answer

IFRS 6 requires disclosure of accounting policies relating to E&E assets. This includes policies related to recognition, measurement, and disclosure of such assets.

Question 7

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

Accepted Answer

The majority of removal and restoration costs are incurred during the development phase of a project, when the site is being prepared for construction activities. This includes activities such as removing existing structures, excavating soil, and addressing any environmental remediation needs. The exploration and technical feasibility phases are focused on determining the viability of a project, while the evaluation phase is focused on reviewing the project to ensure it meets objectives and requirements.

Question 8

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

Accepted Answer

In the exploration phase, costs are often capitalized as intangible exploration and evaluation (E&E) assets. Depreciation of equipment used in this phase is capitalized to the E&E asset rather than expensed.

Question 9

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:

Accepted Answer

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

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?

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 of region. This method is commonly used in the oil and gas industry.

Question 11

Which of the following statements is correct?

Accepted Answer

IFRS 6 was indeed issued by the IASB as an interim measure pending the completion of a comprehensive project dealing with accounting for the extractive industries. Statements A, C, and D are incorrect as they either misrepresent the current scope of the IASB extractive industries project or the IFRS 6 standard.

Question 12

The scope of IFRS 6 is limited to:

Accepted Answer

The scope of IFRS 6 is limited to exploration and evaluation expenditures only.

Note: Pre-exploration and development expenditures are not within the scope of IFRS 6.

Question 13

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

Accepted Answer

IFRS 6 Exploration for and Evaluation of Mineral Resources was issued by the IASB in December 2004.

Question 14

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

Accepted Answer

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

Question 15

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

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 16

Mineral resources are specifically excluded from the scope of which of the following standards? 
I IAS 2 Inventories
II IAS 16 Property, plant & equipment
III IAS 18 Revenue
IV IAS 38 Intangible assets

Accepted Answer

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

Question 17

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

Accepted Answer

The appropriation method is the least applied method for accounting for exploration and evaluation costs, as it only accounts for these costs when the company decides to appropriate or transfer the costs to the production cost of a specific area or asset. The other methods (area of interest, successful efforts, and full cost) all account for exploration and evaluation costs on an ongoing basis.

Question 18

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

Accepted Answer

E&E stands for exploration and evaluation, which refers to the activities undertaken by an entity in locating reserves of mineral resources before deciding whether to extract them. IFRS 6 provides guidance on accounting for E&E expenditures.

Question 19

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

Accepted Answer

Under IFRS 6, Exploration and Evaluation (E&E) assets are assessed for impairment at the level of cash-generating units, which may consist of one or more cash-generating units.

Question 20

Which costs are within the scope of IFRS 6?

Accepted Answer

IFRS 6 applies only to Exploration and evaluation phase expenditure. Pre-exploration expenditure and development phase expenditure are not within the scope of IFRS 6.

Quiz 27: Exploration for and Evaluation of Mineral Resources