Problem 2: For Classroom Discussion

Exploration and evaluation expenditures

__1. PFRS 6 applies to expenditures incurred

1. When searching for an area that may warrant detailed exploration, even though the entity has not yet obtained the legal rights to explore a specific area.
2. When the legal rights to explore a specific area have been obtained, but the technical feasibility and commercial viability of extracting a mineral resource is not yet demonstrable.
3. When a specific area is being developed and preparations for commercial extraction are being made.
4. In extracting mineral resources and processing the resource to make it marketable or transportable.

__2. Does PFRS 6 require an entity to recognize exploration and evaluation expenditure as assets?

1. Yes, but only to the extent such expenditure is recoverable in future periods.
2. Yes, but only to the extent the technical feasibility and commercial viability of extracting the associated mineral resource have been demonstrated.
3. Yes, but only to the extent required by the entitys accounting policy for recognizing exploration and evaluation assets.
4. No, such expenditure is always expensed in profit or loss as incurred.

__3. What is an entity required to consider in developing accounting policies for exploration and evaluation activities?

1. The requirements and guidance in Standard and Interpretation dealing with similar and related issues.
2. The definitions, recognition criteria, and measurement concepts for assets, liabilities, income and expenses in the framework.
3. Recent pronouncements of standard-setting bodies, accounting literature, and accepted industry practices.
4. Whether the accounting policy results in information that is relevant and reliable.

__4. Which of the following expenditures would never qualify as an exploration an evaluation asset?

1. Expenditure for acquisition of rights to explore
2. Expenditure for exploratory drilling
3. Expenditures related to the development of mineral resources
4. Expenditure for activities in relation to evaluating the technical feasibility and commercial viability of extracting a mineral resource.

Measurement

__5. Which measurement model applies to exploration and evaluation assets subsequent to initial recognition?

1. The cost model
2. The revaluation model
3. Either the cost model or the revalidation model
4. The recoverable amount model

Depletion of mineral resources

__6. Which of the following depreciation method most closely approximates the method used to deplete the cost of natural resources?

1. Straight-line method
2. Double-declining-balance method
3. Sum-of-the-years-digits method
4. Units-of-production method