The costs of exploration, evaluation, and exploration will be continued when the technical and commercial feasibility...

The costs of exploration, evaluation, and exploration will be continued when the technical and commercial feasibility of extracting natural resources (oil or gas, for example) is proven. TRUE/FALSE

Expert Solution

FALSE -

Exploration, under IFRS 6 it starts when the legal rights to explore have been obtained. Expenditure incurred before obtaining the legal right to explore is generally expensed; an exception to this would be acquired intangible assets. For instance payment for an option to obtain legal rights.

There are different methods under which expenses are either capitalized or expensed off.

Full Cost Method - Costs incurred in finding, acquiring, and developing natural resources are typically capitalized. Capitalized costs are allocated to commercially feasibility. Failure to discover commercially feasibility reserves means that the expenditure is charged to expense. Capitalized costs are depleted on a field-by-field basis as production occurs.

So the statement is false as if the commercial feasibility is proven, the cost of E&E is typically capitalized.

IFRS 6 is implemented along with US GAAP

ekkarill92 answered 2 years ago

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