Explain If an entity is considering revaluing its exploration and evaluation assets, would the revaluation increase

Home, - Provide explanation for capitalising the expenses

Question: Discuss and explain If an entity is considering revaluing its exploration and evaluation assets, would the revaluation increase the ‘relevance' of the information from the perspective of the readers of the financial statements? Further, provide explanation for capitalising the expenses at evaluation and exploration stage also restoration of a oil extraction project.


The revaluation does not increase the ‘relevance' of the information received from the readers, who have gone through the financial statements. The reasons that can be attributed to this regard are as follows,

1. The value of the reserves is uncertain2
2. The political scrutiny and its high level of subjecting for the extractive companies will keep the asset values very low in circumstances
Capitalizing the expenses and the exploration stage and its evaluation
Both the exploration as well as the evaluation costs in accordance with AASB 6 need to be written off if incurred in all circumstances except that they could be carried forward, provided the rights of the tenure of the area of interest are current.
Any of the following two conditions are expected to be met
1. costs are expected to be recouped through the successful development and exploitation for the interest areas or otherwise by the sale of the same.
2. Exploration and or evaluation activities were not reached to a stage which permit assessment which is reasonable, or to the recoverable reserves which are economical, active and significant operations in the relation to the area which is continuing is also an aspect of this process.

Restoration costs:
In accordance with the AASB 137 provisions the contingent liabilities and contingent assts and AASB 116 property regulations for the plant and the equipment, restoration might be either legal or can be an obligation from moral aspects. This is for reformulating and restoring of the operations cessation. The liability in this case could be normally recognized.
In this context, the following aspects to be focussed on,
1. Estimation of the costs of the restoration to be done from the commencement of the project and these costing to be provided for the entire set of operations.

2. The cost of the respective operational phases need be formed from the restoration costing as well.

3. Production commencement will create the restoration costing to get included into the production costing as well.

Leave a comment


Related :-