For example, judgements made about the lease term or scope of the standard. be neutral (free from bias), prudent, and complete. Answers: 1(d), 2(c), 3(a), Virtual classroom support for learning partners, Diploma in International Financial Reporting, IFRS 6, exploration for and evaluation of mineral resources, be relevant to the decision-making needs of users. IFRS 16 introduces a single lessee accounting model and requires a lessee to recognize assets (right-of-use) and liabilities for All leases with a term of more than 12 months ( unless the underlying asset is of low value ). Examples with solutions 427. Assuming the interest rate is 6% per annum. ... For Example: A construction contract priced in foreign currency. No further exploration or evaluation is planned or budgeted for. Please visit our global website instead. Exploration and development costs that are capitalised are classified as non-current assets in the statement of financial position, and should be separately disclosed on the face of the statement of financial position and distinguished from production assets, where material. Objective. These Illustrative Examples accompany IFRS 17 Insurance Contracts (issued May 2017; see separate booklet) and are issued by the International Accounting Standards Board (the Board). When first recognised in the statement of financial position, exploration and evaluation assets are measured using the cost model. An entity should develop a policy for allocating these assets to groups of cash generating units (CGUs) and apply that policy consistently. The change must result in a policy that is more relevant and no less reliable, or more reliable and no less relevant, than the previous policy. Example … Assets should be tested for impairment if the carrying amount of the asset may not be recoverable. Example 1: Lease accounting in IFRS 16. 5. These examples also illustrate the tagging of new elements added to the IFRS Taxonomy 2019 as a result of the analysis of common reporting practice on IFRS 13 Fair Value Measurement (see Example 15) and general improvements (see Examples 7, 8 and 17) . The full functionality of our site is not supported on your browser version, or you may have 'compatibility mode' selected. Treatment of revenue recognition is one of the few important differences between US GAAP and IFRS systems. Assets recognised in respect of licences and surveys should therefore be classified as intangible assets. The way that the requirements of IFRS 16 are set out results in depreciation and interest charges being spread throughout the lease period (including rent-free periods) without any manual adjustments to general recognition model. Key IFRS 16 Definition. 6 PwC | IFRS overview 2019 Accounting principles and applicability of IFRS The IASB has the authority to set IFRS and to approve interpretations of those standards. The facts and circumstances indicating impairment include the following: As this type of asset does not generate cash inflows, it is tested for impairment as part of a larger group of assets. This is similar to IFRS 4, Insurance Contracts. Thank you for contacting LeaseQuery with your questions. The company has rented an office with 5 years and the payment of $120,000 is at the end of each year. Under IFRS 15, this is not permitted, as IFRS 15 requires allocating the transaction price to individual performance obligations. Specifically: An entity treats exploration and evaluation assets as a separate class of assets and make the disclosures required by either IAS 16 Property, Plant and Equipment or IAS 38 Intangible Assets consistent with how the assets are classified. During the preparatory works, ABC discovered that the operating lease contract related to a machine might require some adjustments. Example 1 An entity holds investments to collect their contractual cash flows. Depreciation and amortisation is not calculated for the assets because the economic resource that the assets represent are not consumed until the production phase. Example: Operating lease in the lessee’s accounts under IFRS 16 ABC, the manufacturing company, needs to adopt the new standard IFRS 16 Leases in the reporting period ending 31 December 2019. The IASB accepted these arguments and therefore issued IFRS 6. BC67-BC81) Investment contracts with discretionary participation features (paragraphs 4(b) and 71 of IFRS … There was a lack of guidance prior to this IFRS Standard, and where national standards did exist, the accounting practices were diverse, and a number were used throughout the world to account for the costs involved in exploration and extraction. Please turn off compatibility mode, upgrade your browser to at least Internet Explorer 9, or try using another browser such as Google Chrome or Mozilla Firefox. 3. EC staff consolidated version as of 16 September 2009 Last EU endorsed/amended on 03.11.2008. IFRS 6 makes limited changes to existing practice. B The definitions, recognition criteria, and measurement concepts set out in the Conceptual Framework In several 4. The facts and circumstances outlined in IFRS 6 are non-exhaustive, and are applied instead of the 'indicators of impairment' in IAS 36 [IFRS 6.19-20], Entities are permitted to determine an accounting policy for allocating exploration and evaluation assets to cash-generating units or groups of CGUs. It was also argued that some entities are created just to carry out exploration, and once this is complete, they sell the rights to the minerals found. Model IFRS statements These are illustrative IFRS financial statements of a listed company, prepared in accordance with International Financial Reporting Standards. IFRS 6 permits an entity to develop an accounting policy for recognition of exploration and evaluation expenditures as assets without specifically considering the requirements of paragraphs 11 and 12 of IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors. On 31 January 2005, Deloitte's IFRS Global Office published a special edition of our IAS Plus Newsletter titled IFRS 6 Exploration for and Evaluation of Mineral Resources. It would have forced them to fall back to the IASB Conceptual Framework, or to standards issued by their respective national standard setters. 4. Examples of such expenditures are those for exploration and evaluation activities, which can be recognised according to IFRS 6 as either an asset or an expense. IFRSs – With respect to revenue recognition, the IFRS framework is general in nature in their requirements, if compared to the GAAP. It was argued that it was too harsh to force those entities that use capitalisation in their accounts to switch to expensing, even though IAS 38 requires this. Exploration and evaluation expenditure might therefore be capitalised earlier than would otherwise be the case under the Conceptual Framework. If a discovery is not made, the expenditure is charged as an expense. [IFRS 6.25], IFRS 6 requires disclosure of information that identifies and explains the amounts recognised in its financial statements arising from the exploration for and evaluation of mineral resources, including: [IFRS 6.23–24]. IFRS 16 Leases contains detailed guidance on how to account for lease modifications. Recognised exploration and evaluation assets should be classified as either tangible or intangible assets under IFRS 6. The standard provides a single lessee accounting model, requiring lessees to recognise assets and liabilities for all leases unless the lease term is 12 months or less or the underlying asset has a low value. [IFRS 6.Appendix A], Exploration and evaluation expenditures are expenditures incurred in connection with the exploration and evaluation of mineral resources before the technical feasibility and commercial viability of extracting a mineral resource is demonstrable. D Whether the accounting policy results in information that is relevant and reliable. A lease modification includes adding or ... See examples 6 and 7. [IFRS 6.21] This accounting policy may result in a different allocation than might otherwise arise on applying the requirements of IAS 36, If an impairment test is required, any impairment loss is measured, presented and disclosed in accordance with IAS 36. Which of the following facts or circumstances would not trigger a need to test an evaluation and exploration asset for impairment? Most of the major entities in this sector use the ‘successful efforts’ method, where the costs incurred in finding, acquiring, and developing reserves are capitalised on a ‘field by field’ basis. Scope 422. In your first example, a lease with less than 12 months left as of transition date, July 1, 2019 in this example, is able to be classified as short term and therefore out of scope for the transition to IFRS 17. IFRS 6 Exploration for and Evaluation of Mineral Resources has the effect of allowing entities adopting the standard for the first time to use accounting policies for exploration and evaluation assets that were applied before adopting IFRSs. B The expiration of the period for which the entity has the right to explore in the specific area, unless the right is expected to be renewed Basically, the entity can retain the accumulated cost as an exploration asset until there is sufficient information to determine whether there will be commercial cash flows or not. IFRS 6 Exploration for and Evaluation of Mineral Resources provides guidance on accounting for exploration and evaluation expenditures, including the recognition of exploration and evaluation assets. Disclaimer: To the extent permitted by applicable law, the Board and the IFRS Foundation (Foundation) expressly disclaim all liability howsoever arising from this publication or any translation thereof Key differences between IFRS 9 and IAS 39 are summarised below: Classification and measurement of financial assets IFRS 9 replaces the rules based model in IAS 39 with an approach which bases classification and measurement on the IAS 36 specifies that a CGU is the smallest unit for which independent cash flows can be identified. T.P. Without IFRS 6, many entities would have had to change their practice of accounting for these costs. IFRS 12.B22(b) Examples of entities with a narrow and well-defined objective that may be structured entities include those designed to effect a tax-efficient lease, carry out research and development activities, provide a source of capital or funding to an entity or provide investment opportunities for investors by passing on . Exempt from requirements of IAS 8 to look to other IFRSs on similar and related issues AND definitions, recognition criteria and measurement concepts in the Framework when developing accounting policy for E&E assets. The IFRS include . IFRS. the amounts of assets, liabilities, income and expense and operating and investing cash flows arising from the exploration for and evaluation of mineral resources. What is an entity required to consider when deciding on its accounting policies for exploration and evaluation activities? Non-current assets and disposal groups held for sale 422. In your second example, you are correct. The entity’s right to explore in an area has expired, or will expire in the near future, without renewal. Sufficient data exists to indicate that the book value will not be fully recovered from future development and production. Subsequent costs incurred during the exploration and evaluation phase should be capitalised in accordance with this same policy. Is an entity ever required or permitted to change its accounting policy for exploration and evaluation expenditure? Below is the index of all IFRS calculation examples available on IFRScommunity.com that come with an illustrative excel file: IFRS 2 excel examples: share-based payment with service vesting condition and market condition; share-based payment with non-market … These illustrative IFRS financial statements are intended to be used as a source of general technical reference, as they show suggested disclosures together with their sources. An entity accounts for its exploration and evaluation expenditure either in accordance with the Conceptual Framework or with the exemption permitted by IFRS 6. These entities' financial statements give information International Financial Reporting Standards - IFRS: International Financial Reporting Standards (IFRS) are a set of international accounting standards stating how particular types of … This allows an entity to apply an accounting policy for exploration and evaluation assets which is relevant and reliable, even though the policy may not be in full compliance with the Conceptual Framework. IFRS 6 permits entities to continue to use their existing accounting policies, provided they comply with paragraph 10 of IAS 8®, Accounting policies, changes in accounting estimates and errors – that is they result in information which is relevant and reliable. IFRS 6 is an interim standard, and is a short-term solution to the problem of accounting for the exploration and evaluation of mineral resource assets. 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