Question

 

“Mining, explorations and other similar extractive businesses are naturally and fundamentally possessing risk, in addition to uncertain outcome” consequently all expenditures of such activities should be accounted for as expenses as and when incurred.

Required: Assess, evaluate and briefly discuss this statement.

Answer 1

 

This statement is partly correct, as the mining and mining industries such as exploration, assessment, design , construction and production operating at various stages. The 'area of interest' procedure shall be used to determine whether exploration, evaluation, development and construction costs should be deduced as incurred or carried forward, in accordance with the appropriate Accounting Standard. In the majority of cases, the Area of interest will comprise of a single mine, petrol or natural gas sector. All direct and indirect costs incurred during the discovery, assessment , development and construction processes and in particular related to the area of interest, will be allocated to this area of interest. For any one area of interest, evaluation and exploration costs can be carried forward. This is possible when there is a probability of success in the area. If there is no such probability, such costs need to be written off when it is incurred. But, transferring costs which are carried forward shall be amortized throughout the lifetime of the area to which they relate.