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The costs incurred in the development and construction phases require more judgement in determining whether or not they constitute an asset for the entity than other stages in the operation:

A) True
B) False

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AASB 6 requires disclosure of information that identifies and explains the amounts recognised in the financial report arising from the exploration for and evaluation of mineral resources. To comply with this prescription, required disclosures include:


A) The accounting policies for exploration and evaluation expenditures including the recognition of exploration and evaluation assets.
B) The basis for determining the amount of restoration expense for the period.
C) The amount of assets, liabilities, income and expense and operating and investing cash flows arising from the exploration for and evaluation of mineral resources.
D) All of the given answers.
E) The accounting policies for exploration and evaluation expenditures including the recognition of exploration and evaluation assets; and the amount of assets, liabilities, income and expense and operating and investing cash flows arising from the exploration for and evaluation of mineral resources.

F) B) and D)
G) B) and C)

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On 1 July 2002 Brumbles Ltd commenced an operation to extract iron ore from two sites believed to have potential in Northern Australia. During the financial period ended 30 June 2003 the following costs were incurreD. On 1 July 2002 Brumbles Ltd commenced an operation to extract iron ore from two sites believed to have potential in Northern Australia. During the financial period ended 30 June 2003 the following costs were incurreD. The Eastern site is found not to be economically viable and is abandoned in the second half of 2003. Development costs of $10 million are incurred at the Western site. The reserves at this site are estimated to be 90,000 tonnes. The market price is currently $700 per tonne. In the financial year ended 30 June 2004, 10,000 tonnes are extracted with associated production costs of $1 million and 8,000 tonnes are sold at the market price. There are no effective limits on the time over which Brumbles Ltd may extract the ore. What are the journal entries to record the relevant transactions and events for 2003 and 2004 using the method required by AASB 1022 (round to the nearest $10,000) ? A) B) C) D) E) None of the given answers. The Eastern site is found not to be economically viable and is abandoned in the second half of 2003. Development costs of $10 million are incurred at the Western site. The reserves at this site are estimated to be 90,000 tonnes. The market price is currently $700 per tonne. In the financial year ended 30 June 2004, 10,000 tonnes are extracted with associated production costs of $1 million and 8,000 tonnes are sold at the market price. There are no effective limits on the time over which Brumbles Ltd may extract the ore. What are the journal entries to record the relevant transactions and events for 2003 and 2004 using the method required by AASB 1022 (round to the nearest $10,000) ?


A) On 1 July 2002 Brumbles Ltd commenced an operation to extract iron ore from two sites believed to have potential in Northern Australia. During the financial period ended 30 June 2003 the following costs were incurreD. The Eastern site is found not to be economically viable and is abandoned in the second half of 2003. Development costs of $10 million are incurred at the Western site. The reserves at this site are estimated to be 90,000 tonnes. The market price is currently $700 per tonne. In the financial year ended 30 June 2004, 10,000 tonnes are extracted with associated production costs of $1 million and 8,000 tonnes are sold at the market price. There are no effective limits on the time over which Brumbles Ltd may extract the ore. What are the journal entries to record the relevant transactions and events for 2003 and 2004 using the method required by AASB 1022 (round to the nearest $10,000) ? A) B) C) D) E) None of the given answers.
B) On 1 July 2002 Brumbles Ltd commenced an operation to extract iron ore from two sites believed to have potential in Northern Australia. During the financial period ended 30 June 2003 the following costs were incurreD. The Eastern site is found not to be economically viable and is abandoned in the second half of 2003. Development costs of $10 million are incurred at the Western site. The reserves at this site are estimated to be 90,000 tonnes. The market price is currently $700 per tonne. In the financial year ended 30 June 2004, 10,000 tonnes are extracted with associated production costs of $1 million and 8,000 tonnes are sold at the market price. There are no effective limits on the time over which Brumbles Ltd may extract the ore. What are the journal entries to record the relevant transactions and events for 2003 and 2004 using the method required by AASB 1022 (round to the nearest $10,000) ? A) B) C) D) E) None of the given answers.
C) On 1 July 2002 Brumbles Ltd commenced an operation to extract iron ore from two sites believed to have potential in Northern Australia. During the financial period ended 30 June 2003 the following costs were incurreD. The Eastern site is found not to be economically viable and is abandoned in the second half of 2003. Development costs of $10 million are incurred at the Western site. The reserves at this site are estimated to be 90,000 tonnes. The market price is currently $700 per tonne. In the financial year ended 30 June 2004, 10,000 tonnes are extracted with associated production costs of $1 million and 8,000 tonnes are sold at the market price. There are no effective limits on the time over which Brumbles Ltd may extract the ore. What are the journal entries to record the relevant transactions and events for 2003 and 2004 using the method required by AASB 1022 (round to the nearest $10,000) ? A) B) C) D) E) None of the given answers.
D) On 1 July 2002 Brumbles Ltd commenced an operation to extract iron ore from two sites believed to have potential in Northern Australia. During the financial period ended 30 June 2003 the following costs were incurreD. The Eastern site is found not to be economically viable and is abandoned in the second half of 2003. Development costs of $10 million are incurred at the Western site. The reserves at this site are estimated to be 90,000 tonnes. The market price is currently $700 per tonne. In the financial year ended 30 June 2004, 10,000 tonnes are extracted with associated production costs of $1 million and 8,000 tonnes are sold at the market price. There are no effective limits on the time over which Brumbles Ltd may extract the ore. What are the journal entries to record the relevant transactions and events for 2003 and 2004 using the method required by AASB 1022 (round to the nearest $10,000) ? A) B) C) D) E) None of the given answers.
E) None of the given answers.

F) A) and C)
G) A) and B)

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When deciding to what extent costs should be written off or carried forward AASB 6 requires that:


A) All activities should be considered to best reflect the position of the firm.
B) Each area of interest as delimited by the firm to be considered separately.
C) Exploration and evaluation costs must be carried forward.
D) Each area of interest as delimited by the firm to be considered separately and exploration and evaluation costs must be carried forward.
E) None of the given answers.

F) C) and D)
G) B) and E)

Correct Answer

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On 1 July 2002 Honies Ltd commenced an operation to extract iron ore from two sites believed to have potential in Northern Australia. During the financial period ended 30 June 2003 the following costs were incurred. On 1 July 2002 Honies Ltd commenced an operation to extract iron ore from two sites believed to have potential in Northern Australia. During the financial period ended 30 June 2003 the following costs were incurred. The Eastern site is found not to be economically viable and is abandoned in the second half of 2003. Development costs of $10 million are incurred at the Western site. The reserves at this site are estimated to be 90,000 tonnes. The market price is currently $900 per tonne. In the financial year ended 30 June 2004, 10,000 tonnes are extracted with associated production costs of $1 million and 8,000 tonnes are sold at the market price. There are no effective limits on the time over which Honies Ltd may extract the ore. What are the journal entries to record the relevant transactions and events for 2003 and 2004 using the full-cost method (round to the nearest $10,000) ? A) B) C) D) E) None of the given answers. The Eastern site is found not to be economically viable and is abandoned in the second half of 2003. Development costs of $10 million are incurred at the Western site. The reserves at this site are estimated to be 90,000 tonnes. The market price is currently $900 per tonne. In the financial year ended 30 June 2004, 10,000 tonnes are extracted with associated production costs of $1 million and 8,000 tonnes are sold at the market price. There are no effective limits on the time over which Honies Ltd may extract the ore. What are the journal entries to record the relevant transactions and events for 2003 and 2004 using the full-cost method (round to the nearest $10,000) ?


A) On 1 July 2002 Honies Ltd commenced an operation to extract iron ore from two sites believed to have potential in Northern Australia. During the financial period ended 30 June 2003 the following costs were incurred. The Eastern site is found not to be economically viable and is abandoned in the second half of 2003. Development costs of $10 million are incurred at the Western site. The reserves at this site are estimated to be 90,000 tonnes. The market price is currently $900 per tonne. In the financial year ended 30 June 2004, 10,000 tonnes are extracted with associated production costs of $1 million and 8,000 tonnes are sold at the market price. There are no effective limits on the time over which Honies Ltd may extract the ore. What are the journal entries to record the relevant transactions and events for 2003 and 2004 using the full-cost method (round to the nearest $10,000) ? A) B) C) D) E) None of the given answers.
B) On 1 July 2002 Honies Ltd commenced an operation to extract iron ore from two sites believed to have potential in Northern Australia. During the financial period ended 30 June 2003 the following costs were incurred. The Eastern site is found not to be economically viable and is abandoned in the second half of 2003. Development costs of $10 million are incurred at the Western site. The reserves at this site are estimated to be 90,000 tonnes. The market price is currently $900 per tonne. In the financial year ended 30 June 2004, 10,000 tonnes are extracted with associated production costs of $1 million and 8,000 tonnes are sold at the market price. There are no effective limits on the time over which Honies Ltd may extract the ore. What are the journal entries to record the relevant transactions and events for 2003 and 2004 using the full-cost method (round to the nearest $10,000) ? A) B) C) D) E) None of the given answers.
C) On 1 July 2002 Honies Ltd commenced an operation to extract iron ore from two sites believed to have potential in Northern Australia. During the financial period ended 30 June 2003 the following costs were incurred. The Eastern site is found not to be economically viable and is abandoned in the second half of 2003. Development costs of $10 million are incurred at the Western site. The reserves at this site are estimated to be 90,000 tonnes. The market price is currently $900 per tonne. In the financial year ended 30 June 2004, 10,000 tonnes are extracted with associated production costs of $1 million and 8,000 tonnes are sold at the market price. There are no effective limits on the time over which Honies Ltd may extract the ore. What are the journal entries to record the relevant transactions and events for 2003 and 2004 using the full-cost method (round to the nearest $10,000) ? A) B) C) D) E) None of the given answers.
D) On 1 July 2002 Honies Ltd commenced an operation to extract iron ore from two sites believed to have potential in Northern Australia. During the financial period ended 30 June 2003 the following costs were incurred. The Eastern site is found not to be economically viable and is abandoned in the second half of 2003. Development costs of $10 million are incurred at the Western site. The reserves at this site are estimated to be 90,000 tonnes. The market price is currently $900 per tonne. In the financial year ended 30 June 2004, 10,000 tonnes are extracted with associated production costs of $1 million and 8,000 tonnes are sold at the market price. There are no effective limits on the time over which Honies Ltd may extract the ore. What are the journal entries to record the relevant transactions and events for 2003 and 2004 using the full-cost method (round to the nearest $10,000) ? A) B) C) D) E) None of the given answers.
E) None of the given answers.

F) A) and C)
G) None of the above

Correct Answer

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Where an area of interest contracts in size and subsequently becomes two distinct operations:


A) All costs to date must be apportioned equally between the two new operations.
B) All future costs must be accounted for separately.
C) Only the costs up to and including production should be apportioned between the two sites.
D) Pre-production cost should be accumulated and then apportioned between the two operations based on the size of the new areas of interest.
E) None of the given answers.

F) A) and D)
G) A) and C)

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Which of the following statement(s) is/are correct?


A) Entities engage in extractive operations should adopt AASB 116 "Property, Plant and Equipment" in the amortisation of capitalised costs.
B) Entities engage in extractive operations should adopt AASB 6 in accounting for its inventories.
C) The obligations of entities engage in extractive operation with respect to restoration costs are outlined in AASB 6.
D) All of the given answers.
E) Entities engage in extractive operations should adopt AASB 116 "Property, Plant and Equipment" in the amortisation of capitalised costs and entities engage in extractive operations should adopt AASB 6 in accounting for its inventories.

F) C) and D)
G) A) and E)

Correct Answer

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Which of the following costs is not an element of cost of exploration for and evaluation of mineral assets in AASB 6"Exploration for and Evaluation of Mineral Resources"?


A) The costs of acquiring leases or other rights of tenure in the area of interest are included in the cost of the exploration and evaluation asset if they are acquired as part of the exploration for and evaluation of mineral resources;
B) Charges for depreciation of equipment used in exploration and evaluation activities;
C) General and administrative costs directly attributed to the operational activities in the area of interest to which the exploration and evaluation asset relates;
D) Salaries and other expenses of general management allocated by head office to the area of interest
E) None of the given answers.

F) C) and E)
G) B) and E)

Correct Answer

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AASB 1022, a predecessor to AASB 6, divides extractive industry operations into five phases. These are:


A) Exploitation, feasibility, establishment, commissioning and manufacturing.
B) Identification, valuation, development, construction and production.
C) Exploration, assessment, research, development and production.
D) Exploration, evaluation, development, construction and production.
E) None of the given answers.

F) B) and E)
G) A) and B)

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The successful-effort method of accounting for pre-production costs does not:


A) Permit the carrying forward of any exploration and evaluation costs.
B) Match the total costs of exploration and evaluation against the revenue arising from the few successful projects.
C) Prohibit the creation of reserves to smooth income by delaying the recognition of expenses and matching them against unrelated revenues.
D) Involve the immediate write-off of any exploration and evaluation costs.
E) All of the given answers.

F) A) and D)
G) C) and D)

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An area of interest is defined in AASB 6 as:


A) A specific type of exploration activity as defined by either the production process, type of mineral or gas extracted, or expected future pattern of cash inflows.
B) A cost centre as defined for the purposes of tracking expenses and revenues and which is also used as a basis for completing taxation returns.
C) A specific geological area as defined by the initial geological surveys or as grouped according to the nature of the natural substance to be extracted.
D) An individual geological area which is considered to constitute a favourable environment where there may be a mineral deposit or natural gas field, or which has been proved to contain such a deposit or field.
E) None of the given answers.

F) None of the above
G) C) and D)

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Disclosures related to restoration costs:


A) Are not covered by AASB 6 and are therefore not required.
B) Should only be reported in the notes to the accounts once they have been completed.
C) Are required by AASB 137.
D) Must include the reason why restoration is being undertaken - legal, voluntary etc.
E) Should only be reported in the notes to the accounts once they have been completed and are required by AASB 137.

F) A) and E)
G) D) and E)

Correct Answer

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By allowing a choice about the treatment of pre-production costs relating to an area of interest, AASB 6 reduces the level of comparability that could otherwise have been achieved through the Standard.

A) True
B) False

Correct Answer

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The differences between the treatment that would be most consistent with the AASB Framework and the method required by AASB 6 for the treatment of pre-production costs include:


A) The AASB Framework requires future benefits to be probable so virtually all exploration and evaluation costs would be written off. Under AASB 1022 these costs may be reinstated if economically viable reserves are discovered.
B) AASB 6 requires future benefits to be probable so virtually all exploration and evaluation costs are to be written off. Under the AASB Framework these costs may be reinstated if economically viable reserves are discovered.
C) The AASB Framework requires future benefits to be probable so virtually all exploration and evaluation costs would initially be written off and only reinstated when economically viable reserves had been discovered. AASB 6 allows the capitalisation of these costs provided active and significant operations in the area are continuing.
D) AASB 6 requires future benefits to be likely and permits the capitalisation of exploration and evaluation costs to the extent that this requirement is met and there are continuing operations in the area of interest. The AASB Framework would require the future benefit to be probable and so the two sources of regulations would result in very similar outcomes in terms of asset and expense recognition.
E) None of the given answers.

F) All of the above
G) B) and E)

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Consistent with AASB 116 the costs of facilities that are depreciable assets associated with an area of interest should be:


A) Depreciated over the life of the area of interest for which they were acquired unless they can be transported to another site or can otherwise be of further use not necessarily connected with any particular area of interest, in which case they should be depreciated over their own specific useful lives.
B) Depreciated over the expected life of the associated mining rights.
C) Depreciated using a method that matches the recovery of future benefits and the pattern of revenue streams generated by the area of interest.
D) Depreciated straight-line over the expected useful life of the particular asset except where the expected life of the area of interest is less than that of the non-current asset. In that case the asset should be depreciated for a period matching the expected life of the area of interest.
E) None of the given answers.

F) A) and B)
G) A) and C)

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AASB 6 "Exploration for and Evaluation of Mineral Resources" allows an entity to apply either the cost model or the revaluation model to the exploration and evaluation assets.

A) True
B) False

Correct Answer

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AASB 6 provides guidance to cover costs incurred in the five phases listed in AASB 1022 namely: exploration, evaluation, development, construction and production:

A) True
B) False

Correct Answer

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If an area-of interest is abandoned, which of the following actions is consistent with AASB 6 "Exploration for and Evaluation of Mineral Resources"?


A) Write-off carrying amount of exploration and evaluation assets and recognize an impairment loss;
B) Reclassify carrying amount of exploration and evaluation assets to another other area-of-interest;
C) Re-instatement of previously written off exploration and evaluation assets is not permitted.
D) Machinery that can be dismantled and used on another area of interest should not be expensed.
E) None of the given answers.

F) A) and E)
G) D) and E)

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The full-cost method involves:


A) The writing off of the full cost of exploration and evaluation in each period.
B) The capitalisation of the full cost of exploration and evaluation in order to amortise it against total production revenue.
C) Including overhead costs in the amount of exploration and evaluation costs written off or capitalised in each period.
D) Tracing the full cost of pre-production costs to the product by using a process costing system to track and report the costs as they are incurred.
E) None of the given answers.

F) None of the above
G) A) and B)

Correct Answer

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AASB 6 deals with the financial recording and performance of an entity and must be applied by all companies:

A) True
B) False

Correct Answer

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