Property, Plant, and Equipment

12. Property, Plant, and Equipment

Exploration and evaluation assets, which mainly comprise unproved properties (rights and conces- sions) and capitalised exploration drilling costs, included within the amounts shown above for oil and gas properties are as follows:

$ million 2006 2005 At January 1

4,386 4,307 Capital expenditure

4,649 1,252 Sales, retirements, currency translation differences and other movements

(72) (1,173) At December 31

Chapter 38 / Exploration for and Evaluation of Mineral Resources (IFRS 6)

$ million 2006 2005

Depreciation, depletion and amortization

At January 1 1,439 1,451 Charge for the year

164 128 Sales, retirements, currency translation differences and other movements

30 (140) At December 31

Net book amount at December 31

Capitalised exploration drilling costs are as follows:

$ million 2006 2005 At January 1

832 771 Capital expenditure (additions pending determination of proved reverses)

1,182 480 Amounts charged to expense

(72) (220) Reclassifications to productive wells on determination of proved reserves

(228) (301) Other movements, including acquisitions, disposals and currency translation differ- ences

(6) 102 At December 31

1,708 832 There were $540 million exploration drilling costs at December 31, 2006, capitalised for periods

greater than one year, representing 52 wells. Information by year of expenditure is as follows:

$ million

Number of wells

These costs remain capitalised for more than one year because, for the related projects, either (a) firm exploration/exploratory appraisal wells were executed in 2006 and/or are planned in the near future, and/or (b) firm development activities are being progressed with a final investment decision expected in the near future.

446 Wiley IFRS: Practical Implementation Guide and Workbook

MULTIPLE-CHOICE QUESTIONS

no less reliable, or more reliable and no less 1. IFRS 6 applies to expenditures incurred

relevant to those needs. (a) When searching for an area that may war-

(d) No, entities would be permitted to change rant detailed exploration, even though the

accounting policy only on adoption of a new entity has not yet obtained the legal rights to

or revised Standard that replaces the existing explore a specific area.

requirements in IFRS 6. (b) When the legal rights to explore a specific

Answer: (c)

area have been obtained, but the technical feasibility and commercial viability of ex-

5. Which of the following expenditures would tracting a mineral resource are not yet de-

never qualify as an exploration and evaluation asset? monstrable.

(a) Expenditure for acquisition of rights to ex- (c) When a specific area is being developed and

plore.

preparations for commercial extraction are (b) Expenditure for exploratory drilling. being made.

(c) Expenditures related to the development of (d) In extracting mineral resources and process-

mineral resources.

ing the resource to make it marketable or (d) Expenditure for activities in relation to transportable.

evaluating the technical feasibility and commercial viability of extracting a mineral

Answer: (b)

resource.

2. Does IFRS 6 require an entity to recognize ex-

Answer: (c)

ploration and evaluation expenditure as assets? (a) Yes, but only to the extent such expenditure

6. Which measurement model applies to explora- is recoverable in future periods.

tion and evaluation assets subsequent to initial (b) Yes, but only to the extent the technical fea-

recognition?

sibility and commercial viability of extract-

(a) The cost model.

ing the associated mineral resource have (b) The revaluation model. been demonstrated.

(c) Either the cost model or the revaluation (c) Yes, but only to the extent required by the

model.

entity’s accounting policy for recognizing (d) The recoverable amount model. exploration and evaluation assets.

Answer: (c)

(d) No, such expenditure is always expensed in profit or loss as incurred.

7. Which of the following facts or circumstances would not trigger a need to test an evaluation and

Answer: (c)

exploration asset for impairment? 3. What is an entity required to consider in develop-

(a) The expiration—or expected expiration in ing accounting policies for exploration and evaluation

the near future—of the period for which the activities?

entity has the right to explore in the specific (a) The requirements and guidance in Standards

area, unless the right is expected to be re- and Interpretations dealing with similar and

newed.

related issues. (b) The absence of budgeted or planned sub- (b) The definitions, recognition criteria, and

stantive expenditure on further exploration measurement concepts for assets, liabilities,

and evaluation activities in the specific area. income, and expenses in the Framework.

(c) A decision to discontinue exploration and (c) Recent pronouncements of standard-setting

evaluation activities in the specific area bodies, accounting literature, and accepted

when those activities have not led to the dis- industry practices.

covery of commercially viable quantities of (d) Whether the accounting policy results in in-

mineral resources.

formation that is relevant and reliable. (d) Lack of sufficient data to determine whether the carrying amount of the exploration and

Answer: (d)

evaluation asset is likely to be recovered in 4. Is an entity ever required or permitted to change

full from successful development or by sale. its accounting policy for exploration and evaluation

Answer: (d)

expenditures? (a) Yes, entities are required to change their ac-

8. Which of the following is not a disclosure re- counting policy for these expenditures if the

quired by IFRS 6?

change would result in more useful infor- (a) Information about commercial reserve quan- mation for users of financial statements.

tities.

(b) Yes, entities are free to change accounting (b) Accounting policies for exploration and policy for these expenditures as long as the

evaluation expenditures, including the rec- selected policy results in information that is

ognition of exploration and evaluation as- relevant and reliable.

sets.

(c) Yes, but only if the change makes the finan- (c) The amounts of assets, liabilities, income cial statements more relevant to the eco-

and expense, and operating and investing nomic decision-making needs of users and

Chapter 38 / Exploration for and Evaluation of Mineral Resources (IFRS 6)

cash flows arising from the exploration for and evaluation of mineral resources.

(d) Information that identifies and explains the amounts recognized in the financial state- ments arising from the exploration for and evaluation of mineral resources.

Answer: (a)