Q1: What is IFRS 6?
IFRS 6 is an International Financial Reporting Standard that provides guidance on accounting for exploration and evaluation (E&E) expenditures in the extractive industries, such as oil and gas, minerals, and metals.
Q2: What are exploration and evaluation (E&E) expenditures?
E&E expenditures are costs incurred in searching for and evaluating mineral resources or reserves. These costs include geological and geophysical studies, exploratory drilling, and sampling of mineral deposits. E&E expenditures are typically incurred before the entity has determined whether a mineral resource or reserve exists, and before the entity has decided whether to develop it.
Q3: How should E&E expenditures be accounted for under IFRS 6?
Under IFRS 6, E&E expenditures should be expensed as incurred, unless the expenditures meet certain criteria for recognition as an intangible asset. To recognize an intangible asset, the expenditures must:
- Be directly attributable to the E&E activity.
- Generate future economic benefits.
- Be technically feasible to evaluate the mineral resource or reserve.
- The entity must have the intention and ability to develop and extract the mineral resource or reserve.
- There must be an adequate assessment of the future economic benefits, and the expenditures must be expected to be recoverable.
Q4: How should intangible assets related to E&E expenditures be accounted for under IFRS 6?
Intangible assets related to E&E expenditures should be measured initially at cost, which includes all costs directly attributable to the acquisition, exploration, and evaluation of the mineral resource or reserve. After initial recognition, the intangible asset should be measured at cost less accumulated amortization and impairment losses.
Q5: What is impairment of an intangible asset related to E&E expenditures?
An impairment of an intangible asset related to E&E expenditures occurs when the carrying amount of the asset exceeds its recoverable amount, which is the higher of its fair value less costs to sell and its value in use. If the recoverable amount is less than the carrying amount, an impairment loss should be recognized in profit or loss.
Q6: Are there any exemptions or exceptions to the requirements of IFRS 6?
IFRS 6 provides a temporary exemption for some disclosures that would otherwise be required under other IFRSs. However, this exemption applies only to entities that have activities in the exploration for and evaluation of mineral resources and that have not yet adopted IFRS 6 at the time of the initial application of other IFRSs. The exemption allows these entities to delay providing certain disclosures until after the first set of financial statements following the adoption of IFRS 6.