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

Answer:

The given statement is incompletely right in light of the fact that there are various stages in the activities of mining and extractive ventures like exploration, evaluation, development, construction and production. . According to the applicable accounting standard, 'area of interest' strategy is utilized to decide if costs or expenses relating to investigation or exploration, evaluation, development, construction and production ought to be written off as and when acquired or carried forward.

In maximum cases, the area of interest would comprise of a solitary mine, oil or gas field and all the direct and indirect expenses caused during exploration, evaluation, development, construction and production stages and especially relatable to the area of interest, are allotted to such area of interest and for any one area of interest, investigation and evaluation expenses can be carried forward as long as there is a probability of achievement here, in any case such costs should be written off as and when brought about. Nonetheless, such expenses which have been carried forward will be amortized over the life of the area of interest to which they relate.