Examples of such expenditures are those for exploration and evaluation activities, which can be recognised according to IFRS 6 as either an asset or an expense. A Entities are required to change accounting policy for expenditure if the change results in more useful information The facts and circumstances outlined in IFRS 6 are non-exhaustive, and are applied instead of the 'indicators of impairment' in IAS 36 [IFRS 6.19-20], Entities are permitted to determine an accounting policy for allocating exploration and evaluation assets to cash-generating units or groups of CGUs. Non-current assets and disposal groups held for sale 422. IFRS 6 is an interim standard, and is a short-term solution to the problem of accounting for the exploration and evaluation of mineral resource assets. 13.4 Consequential amendments to other IFRS requirements 341 13.5 First-time adoption 342 Guidance referenced 344 Detailed contents 345 Index of examples 348 Index of KPMG insights 355 About this publication 363 Keeping in touch 364 Acknowledgments 366 [IFRS 6.9] Thus, an entity adopting IFRS 6 may continue to use the accounting policies applied immediately before adopting the IFRS. IFRS 6 was issued in December 2004 and applies to annual periods beginning on or after 1 January 2006. Specifically: An entity treats exploration and evaluation assets as a separate class of assets and make the disclosures required by either IAS 16 Property, Plant and Equipment or IAS 38 Intangible Assets consistent with how the assets are classified. Example: Operating lease in the lessee’s accounts under IFRS 16 ABC, the manufacturing company, needs to adopt the new standard IFRS 16 Leases in the reporting period ending 31 December 2019. Reference • Understanding IFRS Fundamentals, Nandakumar Ankarath, Kalpesh J. Mehta,Dr. Introduction and overview 421. The global body for professional accountants, Can't find your location/region listed? hyphenated at the specified hyphenation points. IFRS 6 therefore also gives some flexibility when defining a CGU. IFRS 6 specifies some aspects of the financial reporting for costs incurred for exploration for and evaluation of mineral resources (for example, minerals, oil, natural gas and similar non-regenerative resources), as well as the costs of determination of the technical feasibility and commercial viability of extracting the mineral resources. 5. Without this exemption, it could mean that each individual extraction unit (such as an oil rig) would be treated as a CGU. Once entered, they are only A The requirements and guidance in IFRSs dealing with similar and related issues A lease modification is defined as a change in the scope of a lease, or the consideration for a lease, that was not part of the original terms and conditions of the lease. Subsequent costs incurred during the exploration and evaluation phase should be capitalised in accordance with this same policy. Subsequently, cost or the revaluation model, as described in IAS 16 and IAS 38. Most of the major entities in this sector use the ‘successful efforts’ method, where the costs incurred in finding, acquiring, and developing reserves are capitalised on a ‘field by field’ basis. D Whether the accounting policy results in information that is relevant and reliable. [IFRS 6.21] This accounting policy may result in a different allocation than might otherwise arise on applying the requirements of IAS 36, If an impairment test is required, any impairment loss is measured, presented and disclosed in accordance with IAS 36. Assuming the interest rate is 6% per annum. This site uses cookies to provide you with a more responsive and personalised service. IFRS 16 specifies how an IFRS reporter will recognise, measure, present and disclose leases. Example 1: Lease accounting in IFRS 16. 2. 6 PwC | IFRS overview 2019 Accounting principles and applicability of IFRS The IASB has the authority to set IFRS and to approve interpretations of those standards. IFRS 5 Non-current Assets Held for Sale and Discontinued Operations 421. By using this site you agree to our use of cookies. C Only 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 The entity’s right to explore in an area has expired, or will expire in the near future, without renewal. The costs capitalised under IFRS 6 might not meet the Conceptual Framework definition of an asset because, for example, the capitalisation criteria followed might not require the demonstration of present economic resource. Under IFRS 15, this is not permitted, as IFRS 15 requires allocating the transaction price to individual performance obligations. 1. Which of the following facts or circumstances would not trigger a need to test an evaluation and exploration asset for impairment? Sufficient data exists to indicate that the book value will not be fully recovered from future development and production. the amounts of assets, liabilities, income and expense and operating and investing cash flows arising from the exploration for and evaluation of mineral resources. T.P. In your second example, you are correct. The assets are tested for impairment in accordance with IAS 36, subject to certain special requirements. IFRS 6 allows entities using quite different accounting policies to all claim adherence to the standard, effectively exempting them from applying the Conceptual Framework. It sometimes happens that a lease starts with a rent-free period. The standard was published in December 2004 and is effective from 1 January 2006. These Illustrative Examples accompany IFRS 17 Insurance Contracts (issued May 2017; see separate booklet) and are issued by the International Accounting Standards Board (the Board). IFRS 16 introduces a single lessee accounting model and requires a lessee to recognize assets (right-of-use) and liabilities for All leases with a term of more than 12 months ( unless the underlying asset is of low value ). These words serve as exceptions. Example with solution 418. International Financial Reporting Standards - IFRS: International Financial Reporting Standards (IFRS) are a set of international accounting standards stating how particular types of … IFRSs – With respect to revenue recognition, the IFRS framework is general in nature in their requirements, if compared to the GAAP. The company has rented an office with 5 years and the payment of $120,000 is at the end of each year. Please visit our global website instead. Objective. Examples with solutions 427. This includes continuing to use recognition and measurement practices that are part of those accounting policies. IFRS. Details of the amounts capitalised, and the amounts recognised as an expense from exploration, development, and production activities, should be disclosed. IFRS 6 effectively modifies the application of IAS 36 Impairment of Assets to exploration and evaluation assets recognised by an entity under its accounting policy. [IFRS 6.18], its accounting policies for exploration and evaluation expenditures including the recognition of exploration and evaluation assets. These examples also illustrate the tagging of new elements added to the IFRS Taxonomy 2019 as a result of the analysis of common reporting practice on IFRS 13 Fair Value Measurement (see Example 15) and general improvements (see Examples 7, 8 and 17) . This allows an entity to apply an accounting policy for exploration and evaluation assets which is relevant and reliable, even though the policy may not be in full compliance with the Conceptual Framework. Example … Treatment of revenue recognition is one of the few important differences between US GAAP and IFRS systems. Assets recognised in respect of licences and surveys should therefore be classified as intangible assets. IFRS 6 Exploration for and Evaluation of Mineral Resources provides guidance on accounting for exploration and evaluation expenditures, including the recognition of exploration and evaluation assets. Thank you for contacting LeaseQuery with your questions. Definition of an insurance contract (paragraph 6, Appendix A and paragraphs B2-B30 of IFRS 17) (paras. Below is the index of all IFRS calculation examples available on IFRScommunity.com that come with an illustrative excel file: IFRS 2 excel examples: share-based payment with service vesting condition and market condition; share-based payment with non-market … If the Conceptual Framework or IAS 36 was applied to these entities, then no assets would ever be recognised. What is an entity required to consider when deciding on its accounting policies for exploration and evaluation activities? C The absence of budgeted or planned substantive expenditure on further exploration and evaluation activities in the specific area No further exploration or evaluation is planned or budgeted for. Exploration and evaluation expenditure might therefore be capitalised earlier than would otherwise be the case under the Conceptual Framework. 1. Practical guide to Phase 2 amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 for interest rate benchmark (IBOR) reform The IASB has issued amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 that address issues arising during the reform of benchmark interest rates including the replacement of one benchmark rate with an alternative one. C Recent pronouncements of standard-setting bodies, and accepted industry practices D A decision to discontinue exploration and evaluation activities in the specific area when those activities have not led to the discovery of commercially-viable quantities of mineral resources Updated by a member of the DipIFR examining team. The IASB accepted these arguments and therefore issued IFRS 6. Assets should be tested for impairment if the carrying amount of the asset may not be recoverable. EC staff consolidated version as of 16 September 2009 Last EU endorsed/amended on 03.11.2008. These included capitalising the costs, or writing them off in the same way as research expenses. This means that the fundamental principal of capitalisation of exploration costs, used by the majority of mining entities, still remains. Each word should be on a separate line. Exempt from requirements of IAS 8 to look to other IFRSs on similar and related issues AND definitions, recognition criteria and measurement concepts in the Framework when developing accounting policy for E&E assets. The classification as ‘tangible’ or ‘intangible’, established during the exploration phase, should be continued through to the development and production phases. Is an entity ever required or permitted to change its accounting policy for exploration and evaluation expenditure? Depreciation and amortisation is not calculated for the assets because the economic resource that the assets represent are not consumed until the production phase. Example: rent-free period. Examples of better disclosure… IFRS 16 Thematic Review (September 2020) Executive summary Descriptions of judgements made by management in the application of the company’s accounting policy were absent or inadequate. B The expiration of the period for which the entity has the right to explore in the specific area, unless the right is expected to be renewed Example … Basically, the entity can retain the accumulated cost as an exploration asset until there is sufficient information to determine whether there will be commercial cash flows or not. Disclaimer: To the extent permitted by applicable law, the Board and the IFRS Foundation (Foundation) expressly disclaim all liability howsoever arising from this publication or any translation thereof Please allow me to further clarify. As a simple example, a company taking out a 20 year lease at an annual rental of £1 million, with no break clauses, and an illustrative incremental borrowing rate of 6% will recognise a right to use asset (ignoring related costs) and a matching financial liability of £11.5 million, being the discounted value (at 6% pa) of future lease payments. During the preparatory works, ABC discovered that the operating lease contract related to a machine might require some adjustments. These entities' financial statements give information [IFRS 6.Appendix A], Exploration and evaluation expenditures are expenditures incurred in connection with the exploration and evaluation of mineral resources before the technical feasibility and commercial viability of extracting a mineral resource is demonstrable. An entity accounts for its exploration and evaluation expenditure either in accordance with the Conceptual Framework or with the exemption permitted by IFRS 6. For example, judgements made about the lease term or scope of the standard. 2. 3. Examples of expenditures that may be included as part of E&E assets: Acquisition of rights to explore; Presentation of discontinued operations 426. IFRS 6 has the effect of allowing entities adopting the standard for the first time to use accounting policies for exploration and evaluation assets that were applied before adopting IFRSs. Before reclassification, the assets should be tested for impairment. D An entity would not be permitted to change accounting policy unless there is a new or revised standard that replaces the existing requirements in IFRS 6. B The definitions, recognition criteria, and measurement concepts set out in the Conceptual Framework It also modifies impairment testing of exploration and evaluation assets by introducing different impairment indicators and allowing the carrying amount to be tested at an aggregate level (not greater than a segment). ... For Example: A construction contract priced in foreign currency. IFRS 6 Exploration for and Evaluation of Mineral Resources has the effect of allowing entities adopting the standard for the first time to use accounting policies for exploration and evaluation assets that were applied before adopting IFRSs. The facts and circumstances indicating impairment include the following: As this type of asset does not generate cash inflows, it is tested for impairment as part of a larger group of assets. Please read, International Financial Reporting Standards, IFRS 6 Exploration for and Evaluation of Mineral Resources, European Union formally adopts updated references to the Conceptual Framework, AcSB updates research on extractive industries, 17th ESMA enforcement decisions report released, 16th ESMA enforcement decisions report released, IVSC explores extractive industry valuations, EFRAG endorsement status report 9 December 2019, Deloitte comment letter on DP/2010/1 'Extractive Activities', IAS Plus newsletter - Special Global Edition – IFRS 6 Exploration for and Evaluation of Mineral Resources, Extractive activities — Exploration for and evaluation of mineral resources, Extractive activities — Comprehensive project, Project on extractive industries carried over from IASC, Short-term project split off from comprehensive project, Effective for annual periods beginning on or after 1 January 2006, Amended Basis for Conclusions to IFRS 6 only, Entities recognising exploration and evaluation assets are required to perform an impairment test on those assets when specific facts and circumstances outlined in the standard indicate an impairment test is required. 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