IFRS 6: Exploration and

Evaluation of Mineral Resources

The standard aims to describe how the financial

report discloses natural resources. More
specifically, the standard aims to
A) Limited improvements to current accounting
practices for exploration and evaluation
expenses .
B) determine which exploration and valuation
expenses should be capitalized as an asset and
which should be recognized as an expense .
C) subjecting the expenses of the exploration and
assessment (classified as an asset) To assess impairment
in accordance with IFRS 6, while measuring any
impairment in accordance with IAS 36

D) Statement of disclosures that identify and clarify

the amounts presented. Financial statements on
disclosure and valuation of natural resources, and
assist users of financial statements in understanding
the amount, timing and uncertainty of cash flows
arising from any recognized assets relating to
exploration and valuation costs
A) Exploration and valuation items classified as
The costs of exploration:
exploration and evaluation of natural resources,
which are classified as assets according to the
accounting policy followed by the establishment .
B) Exploration and evaluation expenses :
Is the expenses incurred during the exploration and
exploration and before proving the feasibility of
technical and economic extraction of natural
resources.
C) Exploration and exploration of natural resources :
Is the expression of the process of searching for
natural resources after obtaining the legal
right to do the search for it in a specific area.
The process includes determining the
technical and economic feasibility of
extraction of natural resources, including
natural resources minerals, oil, gas and non-
renewable resources.
There are two generally accepted methods in oil and gas
exploration companies used in accounting for research
costs :
A) Successful method of efforts.
B) Method of total cost.
In accordance with the successful efforts included in US
Accounting Standard No. 19, all exploration and evaluation
costs are capitalized only for successful wells and mines.
In addition, wells and mines that are not successful, whether
economically or not, are considered to be more cost
effective .
As for the total cost method, it will capitalize the costs of
prospecting for successful or unsuccessful wells or mines,
within each cost center knowing that the cost center may
be a particular country or a group of countries.
The cost of exploration with the company X, one of the oil
companies as follows:

Required:
Statement of accounting treatment for the above by both
method of successful efforts and the method of total
costs.
1) Successful efforts:
According to the successful efforts method, the oil
reserves will be shown at the cost of the successful
wells only. The non-successful is considered an
expense for the period to bear the income
statement, and thus prove the following constraint:
2) Total cost method:
According to the total cost method, oil stocks will be
shown at the total cost as the empty wells are loaded
on the successful wells. The following entry is
therefore required
 Accounting for depletion of natural
resources

After the process of discovering the natural resources

and processing them for the purposes of exploitation
and proven economic feasibility of the process of
exploitation, the estimated quantity available in the
source or quantity expected to be extracted from the
source during the period of license granted to the
establishment if there is a specific period of
exploitation.
The costs of licensing, exploration and valuation are
classified as assets over the period in which the
source is extracted to recognize the cost of the part
extracted as an expense of depletion or depletion.
The depletion expense is calculated according to the
following steps:

1) The unit cost is calculated according to the following

equation:
Cost per Unit = (Capitalized Capital Costs - Estimated
Residual Value) / Estimated Value
2) In each fiscal period, the quantity extracted
from the natural source is determined, and
then the depletion expense to be loaded for
the period is obtained by finding the quantity
multiplied by the quantity extracted in the
unit cost rate.
3) The depletion expense for each period is
determined by the following entry:

It is noted that the costs of the quantity extracted (their share of

depletion expense) have been charged to the inventory.
In the case of additional costs to manufacture the product is
added to the inventory account, and when selling the inventory
or any part of it is proved the following constraint:
Example 2
-On 1/1/2015 precious metals company obtained the
right to prospect for gold in Jordan and within the
point of Mafraq. On 1/12/2015 one of the mines was
discovered, where the stock was estimated at 8000
ounces and the costs incurred on the mine until its
date, which was capitalized at 1,200,000.
-On 31/12/2015 it was found that 1000 ounces had
been extracted, of which 800 ounces were sold at 50
per ounce.
-On 31/12/2016 it was discovered that 20,000 ounces of
gold had been extracted.
- Company sales for the year 2016/14200 ounce at 60 per
ounce.
Required:
Statement of accounting treatment in the books of the
company to recognize the expense of depletion, along
with how to show the original budget for the years
2015 and 2016:
Solution Example 2:
A) 2015:
- Capitalize the costs of the mine :
 b) 2016:
-depletion expenses for 2016:
Depletion expense for the year 2016 = (15 * 20000) =
300000
 Example 3
If an oil drilling company spends $ 8,000,000 during 2010
on exploration of a number of wells, The result of the
exploration was the success of two wells Of 8 wells
and the failure of the rest of the wells, and estimated
the amount of crude oil available in the wells 400,000
company will be extracted within five years and the
company has produced 50,000 tons during 2010:
Required:
Registration of exploration using the method of
successful efforts and the total cost and calculating the
depletion expense for the year 2010.:
 Solution Example 3
A) By successful efforts:
Natural supplier / Crude oil 2,000,000
Exploration and evaluation expenses 6,000,000
cash 8,000,000

b) Total cost method:

Natural supplier / Crude oil 8,000,000
cash 8,000,000
 *Calculation of depletion expense for 2010:

1) Cost per unit = Assets cost /estimated value

8,000,000/400,000 =20 $
2) Depletion expense for 2010 =
( Quantity extracted or produced * Cost per unit (
500,000 * 20$ =1000,000
Inventory /oil 1000,000
depletion expense 1000,000