Costs of Wasting Asset/Depletion BaseAcquisition Costs Exploration & Evaluation Expenditures Development Expenditures Restoration Expenditures

What cost to include?

Cost of acquiring the property containing the resource.

Expenditures incurred by an entity after the entity has obtained legal rights for the exploration and evaluation of mineral resources but before the technical feasibility and commercial viability of extracting mineral resources.

Examples of expenditures that might be included inthe initial measurement of exploration andevaluation assets acquisition of rights to explore topographical, geological, geochemical and

geophysical studies exploratory drilling trenching sampling activities in relation to evaluating the

technical feasibility and commercial viability of extracting a mineral resource

general and administrative costs directly attributable to exploration and evaluation activities.

Cost incurred to exploit or extract the natural resource that has been located through successful exploration.Expenditures related to the development of mineral resources shall not be recognized as exploration and evaluation assets/expenditures. However they may be capitalized as cost of wasting asset in determining the depletion rate.

Cost incurred in bringing the property to its original condition during a particular period as a consequence of having undertaken the exploration for and evaluation of mineral resources.

What is the accounting treatment?

Capitalized as cost of wasting asset. If there’s a residual value, the same should be deducted in determining the depletion base.

Qualify as EEA (and consequently as cost of wasting asset) in accordance with the entity’s policy for recognition of such assets. PFRS 6 does not provide clearcut guidance for the recognition of EEA. An entity shall determine a policy specifying which expenditures are recognized as exploration and evaluation assets and apply the policy consistently.

An entity may change and even continue to apply its previous accounting policies for

Two forms: Tangible equipment – PPE and subject to

depreciation. Intangible development cost – cost of

wasting asset.Examples: costs such as drilling, sinking mine shaft, & construction of wells.

Note: For problem-solving purposes, development costs (intangible development

Capitalized as cost of wasting asset if it is an existing obligation although amount & timing are uncertain.

exploration and accounting expenditures if the change makes the financial statements more relevant to the economic decision-making needs of users and no less reliable, or more reliable and no less relevant to those needs.

An entity shall judge relevance and reliability using the criteria in IAS 8.

EEA is classified as either intangible or tangible asset.

Two methods: Successful effort – only the exploration cost

directly related to the discovery of commercially producible wells is capitalized as cost of the resource property.

Full cost – all exploration costs whether successful or unsuccessful are capitalized as cost of the successful resource discovery.

costs and costs of preparing the asset for commercial production such as building roads and tunnels) are relevant in determining the depletion rate. However, development expenditures shall be irrelevant in determining the EEA. If silent, development costs are capitalized as cost of wasting asset.

When & How to expense?

Annual depletion using output method as part of COGS.

Annual depletion using output method as part of COGS.

Intangible development cost – annual depletion using output method as part of COGS.

Tangible equipment – annual depreciation using straight line or output method as part of OE.

Annual depletion using output method as part of COGS.