Exploration and evaluation of mineral resources under PFRS 6.

The objective of this standard is to specify the financial reporting for the exploration and evaluation of
mineral resources.

Mineral resources include minerals, oil, natural gas and similar non-regenerative resources.

The term exploration and evaluation of mineral resources is defined as the search for mineral resources
after the entity has obtained legal rights to explore in a specific area as well as the determination of the
technical feasibility and commercial viability of extracting the mineral resources.

The expenditures incurred by an entity in connection with the exploration and evaluation of mineral
resources before the technical feasibility and commercial viability of extracting a mineral resource are
known as exploration and evaluation expenditures.

Expenditures related to development of mineral resources, for example, preparation for commercial
production, such as building roads and tunnels, cannot be recognized as exploration and evaluation
expenditures.

Examples of exploration and evaluation expenditures.

a. Acquisition of rights to explore;

b. Topographical, geological, geochemical and geophysical studies;

c. Exploratory drilling;

d. Trenching;

e. Sampling; and

f. Activities in relation to evaluating technical feasibility and commercial viability of extracting a mineral
resource.

The qualifying expenditures notably exclude those that are incurred in connection with the development
of a mineral resource once technical feasibility and commercial viability of extracting a mineral resource
have been established. Additionally, any administration and other general overhead costs are explicitly
excluded from the definition of qualifying expenditures.

The treatment of exploration and evaluation expenditures?

The exploration and evaluation expenditures may qualify as exploration and evaluation asset.

Under PFRS 6, an entity must develop an accounting policy for the recognition of such asset. An entity is
permitted to continue to apply a previous accounting policy provided that the resulting information is
relevant reliable.

An exploration and evaluation asset shall be measured initial at cost.

After initial recognition, an entity shall apply either the model or the revaluation model.

Exploration and evaluation asset is classified either tangible asset or an intangible asset.

Wasting assets.

Wasting assets are material objects of economic value and utility to man produced by nature. Actually,
wasting assets are natural resources.

Natural resources usually include coal, oil, ore, precious metals like gold and silver, and timber.

Wasting assets are so called because these are physically consumed and once consumed, the wasting
assets cannot be replaced anymore.

If ever, the wasting assets can be replaced only by the process of nature. Natural resources cannot be
produced by man.

Thus, wasting assets are characterized by two main features:

a) The wasting assets are physically consumed.

b) The wasting assets are irreplaceable.

What is the cost of wasting asset?

Costs of Wasting Assets

Acquisition cost, Exploration and evaluation cost

,Development cost, Restoration cost

Explain the acquisition cost of a wasting asset.

Acquisition cost is the price paid to obtain the property containing the natural resource.

Unquestionably, this is the initial cost of the wasting asset.

Generally, the acquisition cost is charged to any descriptive natural resource account.