The objective of the IndAS 106 is to specify the financial reporting for the exploration for and evaluation of mineral resources. The exploration and evaluation expenditures are expenditures incurred by an entity in connection with the exploration for and evaluation of mineral resources before the technical feasibility and commercial viability of extracting a mineral resource are demonstrable.
Exploration for and evaluation of mineral resources is the search for mineral resources, including minerals, oil, natural gas and similar non-regenerative 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 resource.
Ind AS 106: Exploration for and Evaluation of Mineral Resources
Exploration and evaluation assets are exploration and evaluation expenditures recognised as assets as per entity’s accounting policy
- This is applicable in relation to exploration & evaluation expenditures that it incurs.
- Exploration & evaluation expenditure incurred after obtaining the legal rights for such and till the technical feasibility is completed.
- Cost (if any) incurred before obtaining legal right is not dealt with any Ind-as so, it shall directly transferred to profit & loss account.
- Cost incurred after completion of technical feasibility shall be dealt by Ind as 16 (in case of tangible assets) and Ind as 38 (in case of intangible assets).
Some Examples Of Expenditure Incurred After Obtaining Legal Right Of Exploration And Till Completion Of Technical Feasibility Are As Follows
- Cost incurred for obtaining legal rights for exploration.
- Topological studies
- Geological studies
- Geochemical studies
- Geophysical studies
- Restoration cost
The above list is not exhaustive other directly attributable can be capitalised.
Expenditure related to the development of mineral resources shall not be recognised as exploration and evaluation assets.
- Ind AS 40 Investment Property
- Indian Accounting Standard (IndAS 2)
- IND AS 36 Impairment of Assets
- IndAS 1: Presentation of Financial Statement
The IndAS 106:
- (a) permits an entity recognising exploration and evaluation assets to apply paragraph 10 of Ind AS 8 to develop an accounting policy for exploration and evaluation assets.
- (b) requires entities recognising exploration and evaluation assets to perform an impairment test on those assets when facts and circumstances suggest that the carrying amount of the assets may exceed their recoverable amount. When facts and circumstances suggest that the carrying amount exceeds the recoverable amount, an entity shall measure, present and disclose any resulting impairment loss in accordance with Ind AS 36.
- (c) varies the recognition of impairment from that in Ind AS 36 but measures the impairment in accordance with that Standard once the impairment is identified.
An entity shall determine an accounting policy for allocating exploration and evaluation assets to cash-generating units or groups of cash-generating units for the purpose of assessing such assets for impairment. Each cash generating unit or group of units to which an exploration and evaluation asset is allocated shall not be larger than an operating segment determined in accordance with Ind AS 108, Operating Segments.
One or more of the following facts and circumstances indicate that an entity should test exploration and evaluation assets for impairment (the list is not exhaustive):
- (a) the period for which the entity has the right to explore in the specific area has expired during the period or will expire in the near future, and is not expected to be renewed.
- (b) substantive expenditure on further exploration for and evaluation of mineral resources in the specific area is neither budgeted nor planned.
- (c) exploration for and evaluation of mineral resources in the specific area have not led to the discovery of commercially viable quantities of mineral resources and the entity has decided to discontinue such activities in the specific area.
- (d) sufficient data exist to indicate that, although a development in the specific area is likely to proceed, the carrying amount of the exploration and evaluation asset is unlikely to be recovered in full from successful development or by sale.
An entity shall disclose information that identifies and explains the amounts recognised in its financial statements arising from the exploration for and evaluation of mineral resources.
JOURNAL ENTRIES IndAS 106
|For cost of evaluation assets incurred||Extraction/evaluation assets Dr
To bank ac
|For liability incurred towards restoration||Extraction/evaluation assets Dr
To provision for restoration
|For amortisation of intangible portion of evaluation assets||Amortisation a/c Dr
To extraction/evaluation assets (intangible)
|For depreciation of tangible portion of evaluation assets||Depreciation a/c Dr
To extraction/evaluation assets (tangible)
|For restoration of work||Provision for restoration Dr
To bank a/c
|For recognition of depn & amortisation||Spl Dr
To amortisation of intangible asset
Suppose If Actual Restoration Expense Incurred Rs 800000 But We Have Made Provision At Rs 10,00,000 In That Case Journal Entry Passed By Us Are As Follows
LIABILITY FOR RESTORATION DR 1000000
TO BANK 800000
TO EXTRACTION/EVALUATION ASSET 200000
- Exploration period expired and no chance for renew.
- Physical damage to asset (flood,fire etc)
- Discovery not completed within given time frame.
2. Calculation of impairment is made as per ind-as 36.
3. Journal entries
Impairment loss Dr
To exploration & evaluation asset
Spl a/c Dr
To impairment loss