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Problem 27 1

Exploration and evaluation expenditures are incurred when searching for areas that may warrant detailed exploration, obtaining legal rights to explore a specific area, and determining the technical feasibility and commercial viability of extracting a mineral resource. PFRS 6 requires an entity to expense all exploration and evaluation expenditures as incurred, except when certain criteria are met to qualify the expenditures as an asset. Expenditures for development of a mineral resource or extracting and processing a resource do not qualify as exploration and evaluation assets. The cost model applies to measure exploration and evaluation assets subsequent to initial recognition. Triggering a need to test an asset for impairment would include expiration of exploration rights or discontinuing exploration activities, but not a lack of data to determine recoverability.

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5K views

Problem 27 1

Exploration and evaluation expenditures are incurred when searching for areas that may warrant detailed exploration, obtaining legal rights to explore a specific area, and determining the technical feasibility and commercial viability of extracting a mineral resource. PFRS 6 requires an entity to expense all exploration and evaluation expenditures as incurred, except when certain criteria are met to qualify the expenditures as an asset. Expenditures for development of a mineral resource or extracting and processing a resource do not qualify as exploration and evaluation assets. The cost model applies to measure exploration and evaluation assets subsequent to initial recognition. Triggering a need to test an asset for impairment would include expiration of exploration rights or discontinuing exploration activities, but not a lack of data to determine recoverability.

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Problem 27-2

1. Exploration and evaluation expenditures are incurred


a. When searching for an area that may warrant detailed exploration, even though the
entity has not yet obtained the legal rights to explore a specific area.
b. When the legal rights to explore a specific area have been obtained, but the
technical feasibility and commercial viability of extracting a mineral resource are
not yet demonstrable.
c. When a specific are is being developed and preparations for commercial extraction are
being made.
d. In extracting mineral resource and processing the resource to make it marketable or
transportable.
2. Does PFRS 6 require an entity to recognize exploration and evaluation expenditure as an
asset?
a. Yes, but only to the extent such expenditure is recoverable in future periods.
b. Yes, but only to the extent the technical feasibility and commercial variability of
extracting the associated mineral resource have been demonstrated.
c. Yes, but only to the extent required by the entitys accounting policy for
recognizing exploration and evaluation asset.
d. No, such expenditure is always expensed in profit or loss as incurred.
3. Which of the following expenditures would never qualify as an exploration and evaluation
asset?
a. Expenditure for acquisition of rights to explore.
b. Expenditure for exploratory drilling.
c. Expenditures related to the development of mineral resource.
d. Expenditures for activities in relation to evaluating the technical feasibility and
commercial variability of extracting a mineral resource.
4. Which measurement model applies to exploration and evaluation asset subsequent to initial
recognition?
a. The cost model.
b. The revaluation model.
c. Either the cost model or the revaluation model.
d. The recoverable amount model.
5. Which of the following facts or circumstances would not trigger a need to test an evaluation
and exploration asset for impairment?
a. The expiration of the period for which the entity has the right to explore in the specific
area, unless the right is expected to be renewed.
b. The absence of budgeted or planned substantive expenditure on further exploration
and evaluation activities in the specific area.
c. A decision to discontinue exploration and evaluation activities in the specific area
when those activities have not led to the discovery of commercially viable quantities
of mineral resources.
d. Lack of sufficient data to determine whether the carrying amount of the
exploration and evaluation asset is unlikely to be recovered in full from
successful development or by sale.

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