C17: DEPLETION OF MINERAL RESOURCES Flashcards
What is the related standard for C17: Depletion of Mineral Resources?
PFRS 6 Exploration for and evaluation of mineral resources.
A. Explain what mineral is.
B. Discuss the importance of mineral resources in the industry.
C. List the process of the search for mineral resources.
A mineral is pure and inorganic substance that naturally occurs in the earth’s crust.
Why do we extract mineral resources? The reason is that minerals provide the material used to make most of the things in an industrial based society, e.g. roads, cars, computers.
(1) An entity, e.g. a mining company, first has to obtain the legal rights to explore a specific area. After that, (2) it has to determine the technical feasibility, i.e assessing whether the current or available technology that an entity has can successfully implement or operate on an entity’s project, and (3) commercial viability of extracting the mineral resource, i.e. the likelihood that a product, which in this case the mineral resource to be extracted, will be successful in the marketplace.
After all of those only then (4) begin the actual search for mineral resources including minerals, oils, natural gas, and other non-regenerative resources.
Discuss the exemption of PFRS 6 from the PAS 8 hierarchy of reporting standards.
PFRS 6 permits entities to develop their own accounting policy for exploration and evaluation assets that results from relevant and reliable information that is entirely based on management’s judgement and without the need to consider hierarchy of reporting standards in PAS 8. Entities may also recognize the exploration and evaluation expenditures as either assets or expenses depending on its chosen accounting policy.
Discuss the initial measurement for evaluation and exploration assets.
The exploration and evaluation assets are initially measured at cost.
exploration and evaluation assets - exploration and evaluation expenditures recognized as assets in accordance to the entity’s chosen accounting policy. some examples that might be included:
1. legal rights obtained to explore a specific area
2. topographical, geological, geochemical, geophysical studies
3. exploratory drilling
4. trenching
5. sampling
6. activities in relation to evaluation of technical feasibility and commercial viability of a mineral resource
7. present value of any decommissioning and restoration costs that an entity has an obligation as a consequence of having undertaken the operation or the exploration and evaluation activities
Subsequent measurement for exploration and evaluation assets.
Exploration and evaluation assets are subsequently measured at either cost model or the revaluation model.
A. Discuss when an entity may change its accounting policy.
B. Differentiate relevant and reliable information.
An entity may change its accounting policy for exploration and evaluation expenditures if the change results in more relevant and no less reliable, and more reliable and no less relevant, information.
B. Relevant information - the information is capable of affection decisions made by users. This includes timeliness, comparability, and understandability.
Reliable information - the information is undistorted, complete, and free from errors.
The entity judges relevance and reliability using the criteria in PAS 8.
