Indian Accounting Standard (Ind AS) 106 - Exploration for and Evaluation of Mineral Resources

Indian Accounting Standard (Ind AS)106

Exploration for and Evaluation of MineralResources

(This Indian Accounting Standard includes paragraphs set in bold type and plain type,which have equal authority.Paragraphs in bold type indicate the mainprinciples.)

Objective

1The objective of this Indian Accounting Standard (Ind AS) is to specify thefinancial reporting for the exploration for and evaluation of mineralresources.

2In particular, the Ind ASrequires:

(a) limited improvements to existing accounting practices for explorationand evaluationexpenditures.

(b)entities that recognise exploration and evaluation assets to assess suchassetsfor impairment in accordance with this Ind AS and measure any impairmentin accordance withInd AS 36, Impairment ofAssets.

(c)disclosures that identify and explain the amounts in the entity’sfinancial statements arising from the exploration for and evaluation of mineralresources and help users of those financial statements understand the amount, timing and certainty of future cash flows from any exploration andevaluation assetsrecognised.

Scope

3AnentityshallapplythisIndAStoexplorationandevaluationexpendituresthatit incurs.

4ThisIndASdoesnotaddressotheraspectsofaccountingbyentitiesengagedinthe exploration for and evaluation of mineralresources.

5An entity shall not apply this Ind AS to expendituresincurred:

(a) before the exploration for and evaluation of mineral resources, suchasexpenditures incurred before the entity has obtained the legal rights toexplore a specificarea.

(b) after the technical feasibility and commercial viability of extracting amineralresource aredemonstrable.

Recognition of Exploration and EvaluationAssets

Temporary exemption from Ind AS 8 paragraphs 11 and12

6When developing its accounting policies, an entity recognising explorationand evaluation assets shall apply paragraph 10 of Ind AS 8, Accounting Policies,Changesin Accounting Estimates andErrors.

7Paragraphs11and12ofIndAS8specifysourcesofauthoritativerequirementsand guidance that management is required to consider in developing an accountingpolicy for an item if no Accounting Standard applies specifically to that item. Subjectto paragraphs 9 and 10 below, this Accounting Standard exempts an entityfrom applying those paragraphs to its accounting policies for the recognitionand measurement of exploration and evaluationassets.

Measurement of Exploration and EvaluationAssets

Measurement atrecognition

8Exploration and evaluation assets shall be measured atcost.

Elements of cost of exploration and evaluationassets

9An entity shall determine an accounting policy specifying which expendituresare recognised as exploration and evaluation assets and apply the policy consistently.In makingthisdetermination,anentityconsidersthedegreetowhichtheexpenditure can be associated with finding specific mineral resources. The following areexamplesof expenditures that might be included in the initial measurement of explorationand evaluation assets (the list is notexhaustive):

(a)acquisition of rights toexplore;

(b)topographical, geological, geochemical and geophysicalstudies;

(c)exploratorydrilling;

(d)trenching;

(e)sampling;and

(f)activities in relation to evaluating the technical feasibility andcommercial viability of extracting a mineralresource.

10 Expenditures related to the development of mineral resources shall not berecognised as exploration and evaluation assets. The Framework for the Preparationand Presentation of Financial Statements in accordance with Indian Accounting StandardsissuedbytheInstituteofCharteredAccountantsofIndiaandIndAS38, Intangible Assets, provide guidance on the recognition of assets arisingfrom development.

11 InaccordancewithIndAS37,Provisions,ContingentLiabilitiesandContingent Assets, an entity recognises any obligations for removal and restoration thatare incurred during a particular period as a consequence of having undertakenthe exploration for and evaluation of mineralresources.

Measurement afterrecognition

12 After recognition, an entity shall apply either the cost model or the revaluationmodel to the exploration and evaluation assets. If the revaluation model is applied (eitherthe modelinIndAS16,Property,PlantandEquipment,orthemodelinIndAS38)it shall be consistent with the classification of the assets (see paragraph15).

Changes in accountingpolicies

13 An entity may change its accounting policies for exploration andevaluation expendituresifthechangemakesthefinancialstatementsmorerelevanttotheeconomicdecision-makingneedsofusersandnolessreliable,ormorereliable and no less relevant to those needs. An entity shall judge relevance andreliability using the criteria in Ind AS8.

14 To justify changing its accounting policies for exploration andevaluation expenditures, an entity shall demonstrate that the change brings itsfinancial statements closer to meeting the criteria in Ind AS 8, but the change need notachieve full compliance with thosecriteria.

Presentation

Classification of exploration and evaluationassets

15 Anentityshallclassifyexplorationandevaluationassetsastangibleorintangible according to the nature of the assets acquired and apply the classificationconsistently.

16 Someexplorationandevaluationassetsaretreatedasintangible(egdrillingrights), whereas others are tangible (eg vehicles and drilling rigs). To the extent that atangibleassetisconsumedindevelopinganintangibleasset,theamountreflecting that consumption is part of the cost of the intangible asset. However, using atangible asset to develop an intangible asset does not change a tangible asset into anintangible asset.

Reclassification of exploration and evaluationassets

17 An exploration and evaluation asset shall no longer be classified as such whenthe technical feasibility and commercial viability of extracting a mineral resourcearedemonstrable. Exploration and evaluation assets shall be assessed for impairment,and any impairment loss recognised, beforereclassification.

Impairment

Recognition andmeasurement

18Explorationandevaluationassetsshallbeassessedforimpairmentwhenfactsand circumstances suggest that the carrying amount of an exploration andevaluation asset may exceed its recoverable amount. When factsandcircumstances suggest that the carrying amount exceeds the recoverableamount,anentityshallmeasure,presentanddiscloseanyresultingimpairmentlossinaccordance with Ind AS 36, except as provided by paragraph 21below.

19Forthepurposesofexplorationandevaluationassetsonly,paragraph20ofthisAccounting Standard shall be applied rather than paragraphs 8-17 of Ind AS 36when identifyinganexplorationandevaluationassetthatmaybeimpaired.Paragraph20 uses the term ‘assets’ but applies equally to separate exploration and evaluationassetsor a cash-generatingunit.

20Oneormoreofthefollowingfactsandcircumstancesindicatethatanentityshould test exploration and evaluation assets for impairment (the list is notexhaustive):

(a) the period for which the entity has the right to explore in the specific areahasexpired during the period or will expire in the near future, and is notexpected to berenewed.

(b) substantiveexpenditureonfurtherexplorationforandevaluationofmineral resources in the specific area is neither budgeted norplanned.

(c) explorationforandevaluationofmineralresourcesinthespecificareahave not led to the discovery of commercially viable quantities of mineralresourcesand the entity has decided to discontinue such activities in the specificarea.

(d) sufficientdataexisttoindicatethat,althoughadevelopmentinthespecific area is likely to proceed, the carrying amount of the exploration and evaluation asset is unlikely to be recovered in full fromsuccessfuldevelopment or bysale.

Inanysuchcase,orsimilarcases,theentityshallperformanimpairmenttestin accordancewithIndAS36.Anyimpairmentlossisrecognisedasanexpensein accordance with Ind AS36.

Specifyingthelevelatwhichexplorationandevaluationassetsare assessed forimpairment

21Anentityshalldetermineanaccountingpolicyforallocatingexplorationandevaluation assets to cash-generating units or groups of cash-generating unitsfor the purpose of assessing such assets for impairment. Each cash-generatingunitor group of units to which an exploration and evaluation asset is allocatedshall not be larger than an operating segment determined in accordance with IndAS108, OperatingSegments.

22 The level identified by the entity forthepurposesoftestingexploration and evaluation assets for impairment may comprise one or more cash-generatingunits.

Disclosure

23Anentityshalldiscloseinformationthatidentifiesandexplainstheamountsrecognised in its financial statements arising from the exploration forandevaluation of mineralresources.

24 To comply with paragraph 23, an entity shalldisclose:

(a) its accounting policies for exploration and evaluation expendituresincluding the recognition of exploration and evaluationassets.

(b) the amounts of assets, liabilities, income and expense and operatingand investing cash flows arising from the exploration for and evaluation of mineralresources.

25An entity shall treat exploration and evaluation assets as a separate class of assetsand make the disclosures required by either Ind AS 16 or Ind AS 38 consistent withhow the assets areclassified.

AppendixA

DefinedTerms

This Appendix is an integral part of the IndAS.

Appendix1

Note:This Appendix is not a part of the Indian Accounting Standard. The purpose of this Appendix isonlytobringoutthemajordifferences,ifany,betweenIndianAccountingStandard(IndAS)106 andthecorrespondingInternationalFinancialReportingStandard(IFRS)6,Explorationforand Evaluation of Mineral Resources, issued by the International Accounting StandardsBoard.

Comparison with IFRS 6, Exploration for and EvaluationofMineralResources

1 The transitional provisions given in IFRS 6 have not been given in Ind AS 106,since alltransitionalprovisionsrelatedtoIndASs,whereverconsideredappropriatehave been included in Ind AS 101, First-time Adoption of Indian AccountingStandards, corresponding to IFRS 1, First-time Adoption of International FinancialReporting Standards.