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1. Exploration for and Evaluation of Mineral Resources
Related Standard: PFRS 6 | GO – BSAc A
 The term "exploration and evaluation of mineral
resources" refers to the search for mineral resources
when a company has been granted the legal right to
explore in a particular area, as well as the assessment
of the technical feasibility and commercial viability of
extracting the mineral resources.
 Exploration and evaluation expenditures are the costs
incurred by an entity in conjunction with the
exploration and evaluation of mineral resources prior
to demonstrating the technical feasibility and
commercial viability of extracting a mineral resource.
 The following are excluded from exploration and
evaluation expenditures:
o Expenditures incurred before an entity
obtained legal rights to explore;
o After the technical feasibility and commercial
viability of extracting mineral resources are
demonstrable;
o Any developmental expenditure such as
commercial production preparation and road
and tunnel building.
Common examples of exploration and evaluation expenditures:
• Acquisition of rights to explore;
• Topographical, geological, geochemical and
geophysical studies;
• Exploratory drilling, trenching and sampling;
• Cost of examining the technical feasibility and
economical viability of extracting mineral resources;
Measurement 🧮
Initial measurement: Exploration and evaluation assets are
initially measured at cost.
Subsequent measurement: Exploration and evaluation assets
are subsequently measured using either: • Cost model, or •
Revaluation model.
Classification of E&E assets
Exploration and Evaluation assets are classified as:
• Tangible – include machines, equipment and vehicles
utilized in exploration and evaluation activities
• Intangible – the rights that allow a business to execute such
operations as drilling
Wasting Assets
Ø Also referred to as the natural resources.
Ø These are assets held by an entity that have economic value
and are produced nature, such as oil, gas reserves, and
mineral deposits.
Note: The term "wasting" refers to its nature, that once
'physically consumed: This kind of assets cannot be replaced
anymore.
The only way to replace wasting assets, if at all, is for nature to
do so. Humans are incapable of producing natural resources.
However, there are also wasting assets that are irreplaceable.
Components of cost of wasting assets
Acquisition cost of the property (including direct
attributable costs)
XX
Capitalizable exploration and development costs XX
Restoration cost (at present value) XX
Total cost of wasting assets XX
Acquisition cost of the property
• The cost of acquiring the land on which the natural resource
is located
• The portion of the purchase price applicable to the land may
be included in the natural resource account if there remains a
residual value after the extraction of the natural resources.
• The land may be set up in a separate account and the
remaining cost should be charged to the natural resource
account.
Exploration Costs
• Amount expended to locate a natural resource
before the extraction of mineral resources
• Expenditures incurred prior to demonstrating the
technical feasibility and commercial viability of
extracting a mineral deposit
• The cost of exploration arises the purchase of
exploration rights, geological studies, exploratory
drilling, trenching, and sampling; these efforts result in
either success or failure
Development Costs
• Cost incurred to extract natural resources that have
been discovered.
• Development cost can be categorized under tangible
equipment or intangible development cost.
• Transportation equipment, heavy machinery, tunnels,
and bunkers are examples of tangible equipment.
However, these costs are not capitalized as part of the
cost of natural resources; instead, they are recorded in
a separate account and depreciated accordingly.
• Intangible development costs are capitalized as part
of the cost of natural resources. Drilling, sinking mine
shafts, and well construction are some examples of
such costs.

2. Restoration Costs
Cost to be incurred to restore the property to its
original condition. The expected cost of restoring the
the property to its original condition is capitalized only
when the entity incurs the liability when the asset is
acquired, according to PAS 16, paragraph 16.
Furthermore, aside from the fact that the estimated
restoration cost must be discounted, it should also
represent a pre-existing legal or control obligation.
Practice Problem
1. In 20x1, ABC Mining Corp. acquired the right to use 1,000
acres of land to mine for gold. The lease cost is P50,000,000.
The related exploration costs on the property amounted to
P10,000,000. It is the policy of ABC Mining Corp. to
capitalize all costs of exploration and evaluation of mineral
resources. Intangible development costs for drilling,
tunnels, shafts, and wells incurred before opening the mine
amounted to P85,000,000. A law requires ABC to restore
the site at the end of the mine's economic useful life. The
estimated restoration costs have a fair value of P5,000,000.
ABC estimates that the mine will provide approximately
100,000,000 ounces of gold. ABC extracted 300,000 ounces
of gold in 20×2.
Required: Compute the total cost of natural resource.
Depletion
Refers to systematic allocation of depletable amount of a
wasting asset over the period the natural resource is
extracted or produced. In other words, depletion pertains
to natural resources removal, extraction, or exhaustion.
Depletion is computed using the output method.
Formula for depletion:
Depletion = Actual units extracted × Depletion rate
Formula for depletion rate:
Depletion rate =
𝐃𝐞𝐩𝐥𝐞𝐭𝐚𝐛𝐥𝐞 amount of the wasting asset∗
𝑬𝒔𝒕𝒊𝒎𝒂𝒕𝒆𝒅 𝒖𝒏𝒊𝒕𝒔 𝒕𝒐 𝒃𝒆 𝒆𝒙𝒕𝒓𝒂𝒄𝒕𝒆𝒅
*amount subject for depletion (total cost – residual value)
Depletion is treated as an inventoriable cost. If the related
product is sold, depletion will form part of the COGS for
the current period. If the related product is not yet sold,
depletion will form part of the ending inventory which will
be reported as part of current assets of the entity.
2. Sparkle Company, a wasting asset entity, acquired the right
to use a property to explore a natural resource. The
following are the costs relevant to the wasting asset:
Acquisition cost 4,000,000
Exploration cost 1,000,000
Development cost 6,000,000
Restoration cost 4,000,000
Total Cost 15,000,000
Additional information revealed that the estimation for
resource deposit is 7,500,000 units.
1. How much is the depletion rate per unit?
2. How much is the depletion if 300,000 units were extracted
during 1st year?
3. What is the adjusting entry to reflect the depletion?
4. At the start of 2nd year, the estimation for the remaining
resource deposit is 6,000,000 and actual units extracted
500,000. What is the adjusting entry?
Depreciation of Mining Property
All tangible equipment used in mining operations shall be
reported in separate accounts and depreciated following the
normal company depreciation policies. Mining properties are
classified either as movable or immovable.
a. Movable mining properties are those that can be used from
one extracting site to another. They have alternative use even
after the natural resource is fully depleted.
b. Immovable mining properties are those that cannot be used
in other extracting sites after the reserves in one site are fully
depleted. They have no further use after the natural resource
is fully depleted.
Depreciation of Mining Property
Shutdown of Mining Operations
When the output method is used to depreciate mining
property, it cannot be employed in the event of a shutdown. In
this situation, the depreciation in the year of shutdown is
calculated using the straight-line method based on the
equipment's remaining useful life. To arrive at the depreciation
in the year of shutdown, divide the remaining carrying amount
of the property by its remaining life. When operations are
resumed, the depreciation is calculated again using the output
method, if this method was used before the operation was shut
down. In this situation, a new depreciation rate unit is
calculated by dividing the property's remaining carrying
amount by the deposit's remaining or revised estimate.
3. On January 1, 2021, purchased a
resource deposit expected to hold 1,000,000 units. For
P10,000,000.00, the business also purchased heavy
equipment required to extract the deposit. The asset is
expected to have a 20- year useful life with to residual value
at the end of that time. Barbie also expects that 100,000
units will be extracted per year on average. 80,000 units

3. were extracted in 2021. In 2022, 110,00 units were extracted.
However, the quarry's operations were temporarily halted
in the year 2023. A year later, operations were resumed.
The equipment’s remaining usable life has been revised to
16 years by the entity. According to the new estimation,
there are still 1,500,000 units left in the deposit, and it will
able to extract 150,000 units per year. During the year,
Barbie extracted 120,000 units. Required: Record the
depreciation of the equipment from 2021 to 2024.
Rule on dividend payments of wasting asset entities The
balance of any unrestricted retained earnings is usually
distributed to it owners. Liquidating dividends are amounts
declared in excess of unrestricted retained earnings. The
trust fund theory prevents entities from declaring
dividends from their legal capital. The trust fund doctrine
states that a corporation’s share capital is kept in trust for
the benefit of its creditors. As a result, unless the
corporation is dissolved or liquidated, no part of the capital
will be distributed to the owners.
The wasting asset doctrine, rather than the trust fund
doctrine, applies to wasting asset entities. Due to the
irreplaceable character of the entity's assets, dividends can
be distributed not only to the extent of unrestricted
retained earnings, but also to the extent of accumulated
depletion that has been realized but not yet liquidated
under the wasting asset theory.
Rule on dividend payments of wasting asset entities
Formula to compute for the maximum amount of dividends that
can be declared by a wasting asset entity:
Unrestricted retained earnings xx
Add: Accumulated depletion xx
Less: Capital liquidated account balance xx
Less: Unrealized depletion in ending inventory xx
Maximum amount of dividends that can be declared xx
4. Ken Co. has the following balances in its accounts as of
December 31, 20x1:
Resource deposit - coal mine 10,000,000
Accumulated depletion 4,000,000
Ordinary share capital 20,000,000
Capital liquidated 2,000,000
Unappropriated Retained Earnings 5,000,000
Inventory (600,000 units) 7,000,000
Depletion rate/unit 1.50/unit
REQ: Compute for the maximum amount that can be declared as
dividends.

4. Problem 29-8 (IAA)
On January 1, 2020, Plausible Company reported the
following account balances relating to property, plant and
equipment:
Land 2,000,000
Building 15,000,000
Accumulated depreciation 3,750,000
Machinery 3,000,000
Accumulated depreciation 1,500,000
Assets have been carried at cost since acquisition. All
assets were acquired on January 1, 2010.The straight line
method is used. On January 1, 2020, the entity decided to
revalue the [property, plant and equipment. On such date,
competent appraisers submitted the following:
Replacement cost
Land 5,000,000
Building 25,000,000
Machinery 3,000,000
 What is the revaluation surplus on January 1, 2020
Problem 29-9 (PHILCPA Adapted)
On January 1, 2020, Contentious Company provided the
following information related to the land and building:
Land 50,000,000Building
450,000,000Accumulated depreciation – building
75,000,000There were no additions or disposals during
the current year. Depreciation is computed using straight
line over 15 years for building. On June 30, 2020 the land
and building were revalued.
Replacement cost Sound value
Land 65,000,000 65,000,000
Building 600,000,000 480,000,000
Problem 29-10 (IFRS)
On June 30, 2020, Clandestine Company reported
the following information related toequipment:
Equipment at cost 5,000,000
Accumulated depreciation 1,500,000
The equipment was measured using the cost model and
depreciated on a straight line basis over a10-year period.
On December 31, 2020, the entity decided to change the
basis of measuring the equipment from the cost model to
the revaluation model. On revaluation date, the
equipment had a fair value of P4,550,000 with an
expected remaining useful life of 5 years.
 What is included in the journal entry to record the
revaluation on December 31, 2020?