1.

Applicability
- Applies PFRS 6 to Exploration and Evaluation Expenditures that it incurs.

2. Inapplicability
- Does not apply PFRS 6 to Expenditures incurred:
- BEFORE the exploration for evaluation of resources
- -- Such as expenses before entity hasxra obtained the legal rights to explore a specific area.
- -- AFTER Technical Feasibility and Commercial Viability of extracting a mineral resource are
demonstrable.

3. MIning Value Chain

- PRE-EXPLORATORY ACTIVITIES
- - before the entity gained legal right to explore = EXPENSE
- EXPLORATION
- Expenditures below are included in initial measurement;
1. Acquisition of Exploration Rights
2. Topographical, Geological, Geochemical, and Geophysical studies;
3. Exploratory Drilling
4. Trenching
5. Sampling, and
6. Activities to evaluate the technical feasibility and commercial viability of extracting mineral
resources. = ASSET or EXPENSE
- EVALUATION = ASSET
- DEVELOPMENT = ASSET
- - Once technical and commercial viability are demonstrated. Exploration and Evaluation Assets are
RECLASSIFIED as DEVELOPMENT COSTS
- PRODUCTION = ASSET
- CLOSURE = ASSET

4. Recognition of Exploration and Evaluation Assets

- Can be treated as either EXPENSE OR ASSET depending on the Accounting Policy.

5. Initial Measurement
- At COST
- - Natural Resources - are assets that are used up when they are consumed (myaccoountingcourse.com)
- COST OF NATURAL RESOURCES:
1. Acquisition Cost
2. Exploration and Evaluation Cost
3. Development Cost
- Tangible Equipment
- - Not capitalized as cost of natural resources.
- Intangible Development Cost
- - Capitalized as cost of NR - Drilling, wells.
4. Estimated Restoration Cost
- Costs that may be necessary to bring the property to its original state. The estimated cost is capitalized
only to the extent that it is recognized as a provision.
6. Exploration and Evaluation Asset
- Costs incurred AFTER the entity obtained legal right but BEFORE the technical and commercial
viability of extracting resources is demonstrable.
- Companies have a choice of either writing it off as costs are incurred or capitalize these cost pending
evaluation.

7. Subsequent Measurement
- Either COST MODEL or REVALUATION MODEL
- REVALUATION MODEL
- Dr. Wasting Asset xx
- Cr. Revaluation Surplus xx
- REFER TO PAS 16 - PPE and pas 38 - INTANGIBLE ASSET

8. Depletion
- Refers to Systematic and Rational Allocation of the depletion base of a natural resource over its useful
life.
- The method used for depletion is the:
- UNITS OF OUTPUT METHOD (UOP)
- Formula: *Refer to the photo attached*
- CHANGE IN ACCOUNTING ESTIMATE
- Change in units estimated to be extracted or when the company incurs additional costs.
- These changes are regarded as change in Accounting estimate to be handled CURRENTLY and
PROSPECTIVELY. The company needs to compute for the NEW DEPLETION RATE PER UNIT
- Formula: See photo attached.
- CHANGE IN ASSET RETIREMENT OBLIGATION (e.g. Restoration Cost)
- The change is accounted as CHANGE IN ACCOUNTING ESTIMATE. The difference in the present
value of the estimated restoration cost is adjusted in the cost of the wasting asset and the related
liability.

9. Depreciation of Mining Equipment

- Movable = Depreciate using the EUL.
- -> Assumed Use of Straight Line Method.
- Immovable = Depreciate using the life of the equipment or life of the wasting asset WHICHEVER IS
SHORTER.
- When life is shorter: (Assumed straight line method)
- -> Depreciation - Depreciable cost / EUL
- When wasting asset is shorter ( UOP Methods)
- -> Depreciation - Depreciation rate per unit x units extracted during the year.

10. Shutdown
- Assuming OUTPUT Methods was used before shutdown.
- - Shift to straight line method when there is no production.
- - Return to UOP when it continues.
- - Deprecation = Remaining BV before Shutdown / Rem. Life
- OPERATIONS RESUMED:
- Dep/unit = Rem. BV after shutdown / Rem. Revised estimate or productive output.
11. Liquidating Dividends
- Trust fund doctrine --> the capital stock of corporation is conceived as trust fund for the protection of
creditors. Consequently, the capital cannot be returned to stockholders during lifetime of the corp.
However, the corp. can pay dividends to stockholders but limited to balance of retained earnings.
- Creditors are prioritized first before the owners (A=L+E)
- EXCEPTION:
- WASTING ASSET DOCTRINE - Under this doctrine, the wasting asset or a company engaged in the
extraction of resources, can legally return capital to stockholders during the lifetime of the corp.
Accordingly, a wasting asset corporation can pay dividend not only to the extend of retained earnings
but also to the extent of accumulated depreciation.
- MAXIMUM DIVIDEND - Refer to photo uploaded.

12. Financial Statement Presentation and Disclosure

- SFPosition: Non-Current Assets - PPE or Intangible Asset
- SCF: Investing Activities
- Indirect Method for Operating Activities
- Depreciation Expense = ADD
- Loss on Sale = ADD
- Direct Method;
- Cash Acquisition = DEDUCT
- Cash Sale = ADD
- P/L: Depreciation/Amortization Expense

13. IMPAIRMENT
- circumstances that indicates an entity should
- Test exploration and evaluation assets for impairment:
- 1. The period for which the entity has the right to explore specific area has EXPIRED during the
period or WILL EXPIRE in the near future, and is NOT EXPECTED to be RENEWED.
- 2. Further exploration for an evaluation of mineral resource are NEITHER BUDGETED NOR
PLANNED in the near future,
- 3. HAVE NOT LED TO DISCOVERY of commercially viable quantities of mineral resources and the
entity has DECIDED TO DISCONTINUE the activities.
- 4. The entity made the decision NOT TO DEVELOP THE RESOURCES in the specific area.
- 5. The entity plans to DISPOSE THE ASSETS at an Unfavorable Price.
- 6. Significant changes have occurred with adverse effect on accounting assumptions. Such as prices
and foreign exchange rates, underlying approved budgets, or plans for further exploration for and
evaluation of mineral resources.