DEPLETION OF MINERAL RESOURCES – PFRS 6
EXPLORATION & EVALUATION ASSETS
Definition
Exploration and evaluation assets are expenditures incurred by an entity in connection with exploration
and evaluation of mineral resources BEFORE technical feasibility and commercial viability of extracting
mineral resources are demonstrable.
Scope
An entity shall not apply PFRS to expenditures incurred:
(1) Before the exploration and evaluation of mineral resources such as expenditures incurred before
obtaining legal rights to explore a specific area.
(2) After the technical feasibility and commercial viability of extracting a mineral resource are
demonstrable.
NOTE: Under PFRS 6, an entity must develop its own accounting policy for the recognition of such asset
based entirely on management’s judgment and without the need to consider the hierarchy of standards
in PAS 8.
Measurement
Initial Measurement – at COST
Subsequent Measurement – Cost Model or Revaluation Model
WASTING ASSETS
Definition
Wasting Assets are material objects of economic value and utility to man produced by nature.
Wasting Assets are so called because these are physically consumed and once consumed, the wasting
assets cannot be replaced anymore.
COST OF WASTING ASSETS (Acronym: DEAR)
Development Cost – is the cost incurred to exploit or extract the natural resource that has been located
through successful exploration.
Tangible Development Cost
Intangible Development Cost
Cost of Wasting Asset?
No (Property, Plant and Equipment)
YES (SILENT)
Depreciation of Tangible Development Cost
General Rule: All Equipment are depreciated shorter between its own useful life and life of wasting asset.
Exception:
Movable
Immovable
Useful life to be used?
Own Useful Life
Depreciation Method
Straight Line or other stated
methods.
Shorter between its own life and
life of wasting assets
Useful Life > Wasting Asset’s Life Output Method (Units of
Production Method)
Useful Life < Wasting Assets Life Straight-Line or other method.
Exploration Costs – These are costs incurred after obtaining the legal right to explore a site but before
technical feasibility with the purpose of searching mineral resources.
Acquisition Costs – is the price paid to obtain the property right to search and find an undiscovered and
already discovered resource. Acquisition Costs of Wasting Assets are determined similarly with the cost of
PPE.
Restoration Costs – Estimated restoration cost is the cost to be incurred in order to bring the property to
its original condition. @ Present Value of the future cash flows to be incurred to restore the property.
DEPLETION
Depletion – is the removal, extraction or exhaustion of a natural resource or wasting asset. A systematic
allocation of the depletable amount of a wasting asset over the periods the natural resource is extracted
or produced.
Depletion Period – When the waste asset stats to be extracted.
Depletion Method – Output or Production Method.
CHANGE IN ESTIMATE – PAS 8
STEP 1: Determine the carrying amount of the wasting assets as at the beginning of the period of change
(LATEST CARRYING AMOUNT BEFORE THE CHANGE). This carrying amount shall be the basis of the new
estimate a.k.a as if the new Cost.
STEP 2: apply the changes by depleting the carrying amount on STEP 1 using the revised estimated number
of reserves and/or residual value.
PRESENTATION – as part of the cost of INVENTORY, which will be presented later on to Cost of Goods Sold
when the related inventory is sold.
ACCOUNTING FOR SHUTDOWN
During the period of shutdown or non-extraction:
(1) No depletion is charged.
(2) Depreciation continues since the asset is still available for use. This is the accounting problem in
the periods of shutdown.
Tangible Development Cost
-
Straight Line method over its Remaining Useful Life during the periods of Shutdown. Since
there is a change in Accounting Estimates.
After the period of shutdown or period with resumed extractions:
(1) Depletion resumes
(2) Depreciation continues and tangible immovable development cost is based shorter between
useful life and the life of the wasting assets.