Question

“Because exploration and mining activities are inherently risky and uncertain, all exploration and evaluation expenditures should be expensed as incurred.”

Required:

Evaluate this statement in the context of why the expenditure would be undertaken, in the context of financial reporting and the context of the purpose of financial reporting.

Answer 1

Answer :-

Explanation :-

● Such an approach would be excessively conservative and would lead to an understatement ofa reporting entity’s assets. ●Exploration and evaluation expenditure would not be undertaken ifit was considered that none of the expenditure would lead to economic benefits.

●Clearly,some of the expenditure will lead to future economic benefits, and as such, some of theexpenditure should be carried forward to future periods.

●Further, if every reporting entitywere simply to write-off all its exploration and evaluation expenditure as incurred, readers offinancial statements would be unable to discriminate between entities that have undertakensuccessful exploration and evaluation, and those that have not.