1.

In relation to mining activities, ‘exploration’ means

a. The search for resources suitable for commercial exploitation.
b. Determining the technical feasibility and commercial viability of a mineral resource. EVALUATION
c. Establishing access to and commissioning facilities to extract, treat and transport production from the
mineral reserve, and other preparations for commercial production.
d. The day-to-day activities of obtaining a saleable product from the mineral reserve on a commercial
scale.

2. Does PFRS 6 require an entity to recognize exploration and evaluation expenditures as assets?
a. Yes, but only to the extent such expenditure is recoverable in future periods
b. Yes, but only to the extent the technical feasibility and commercial viability of extracting the
associated mineral resource have been demonstrated
c. Yes, but only to the extent required by the entity’s accounting policy for recognizing exploration and
evaluation assets
d. No, such expenditure is always expensed in profit or loss as incurred

3. An entity is involved in the exploration of mineral resources. It incurred the following expenditures:
Million
Conducting topographical, geological, geochemical and geophysical studies exploration 30
Constructing roads and tunnels development 200
Determining volume and grade of deposits evaluation 10
Exploratory drilling exploration 50
Examining and testing extraction methods and metallurgical or treatment processes evaluation 5
Other expenditures relating to the subsequent development of the resources development 300
Permanent excavations development 80
Researching and analyzing an area’s historic exploration data exploration 12
Surveying transportation and infrastructure requirements, and conducting market
and finance studies evaluation 3
Trenching and sampling evaluation 90
200
The entity’s policy is to recognize exploration assets and measure them initially at cost.
In accordance with PFRS6, at what amount should exploration and evaluation assets be initially recognized
in the financial statements of the entity?
a. 480 million b. 400 million c. 200 million d. 197 million

4. An exploration and evaluation asset shall no longer be classified as such when

a. The technical feasibility and commercial viability of extracting a mineral resource are not clear.
b. The technical feasibility and commercial viability of extracting a mineral resource are demonstrable.
c. The exploration and evaluation assets are impaired.
d. The exploration and evaluation assets are revalued.

5. Which statement is incorrect regarding presentation of exploration and evaluation assets?

a. An entity shall classify exploration and evaluation assets as tangible or intangible according to the
nature of the assets acquired and apply the classification consistently.
b. Some exploration and evaluation assets are treated as intangible (eg drilling rights), whereas
others are tangible (eg vehicles and drilling rigs).
c. To the extent that a tangible asset is consumed in developing an intangible asset, the amount
reflecting that consumption is part of the cost of the intangible asset.
d. Using a tangible asset to develop an intangible asset changes a tangible asset into an intangible asset.

6. The Macau Company is involved in the exploration for mineral resources. Its policy is to recognize exploration
assets and measure them initially at cost.
The following amounts were extracted from Macau's financial statements:
Million
Trenching and sampling expenditure 100 INTANGIBLE
Drilling rigs used for exploration, carrying amount 200 TANGIBLE
Drilling rigs used for exploration, depreciation expense 30 INTANGIBLE

In accordance with PFRS6 Exploration for and evaluation of mineral resources, at what amount
should intangible exploration assets be initially recognized in the financial statements of Macau?
a. 100 million b. 130 million c. 300 million d. Nil
7. Which measurement model applies to exploration and evaluation assets subsequent to initial recognition?
a. The cost model
b. The revaluation model
c. Either the cost model or the revaluation model
d. The recoverable amount model

8. Which statement is incorrect regarding disclosure of information regarding exploration and evaluation of
mineral resources?
a. An entity shall disclose information that identifies and explains the amounts recognized in its
financial statements arising from the exploration for and evaluation of mineral resources.
b. An entity shall make the disclosures required by PAS 16 for tangible exploration and evaluation assets.
c. An entity shall make the disclosures required by PAS 38 for intangible exploration and evaluation assets.
d. An entity shall treat exploration and evaluation assets as an addition to property, plant and
equipment or intangible assets.

9. Which of the following is not a disclosure required by PFRS 6?

a. Accounting policies for exploration and accounting expenditures, including the recognition of
exploration and evaluation assets.
b. The amounts of assets, liabilities, income and expense, and operating and investing cash flows
arising from the exploration for and evaluation of mineral resources.
c. Information that identifies and explains the amount recognized in the financial statements
arising from the exploration for and evaluation of mineral resources.
d. Information about commercial reserve qualities.

10. The most common method of recording depletion for accounting purposes is the
a. Percentage depletion method.
b. Diminishing-charge method.
c. Straight-line method.
d. Units-of-production method.

11. Zambales Corp. acquired property which contains mineral deposit. The acquisition cost of the property
was P20,000,000. After acquisition, the following costs were incurred:
Exploration cost 13,000,000
Development cost related to drilling of wells 10,000,000
Development cost related to production equipment 15,000,000

For P2,000,000, the entity is legally required to restore the land to a condition appropriate for resale. It is
estimated that the property can be sold for P5,000,000 following mineral extraction. Geological estimates
indicate that 5,000,000 tons of mineral may be extracted.
In the current year, the entity extracted 600,000 tons of the mineral and sold 450,000 tons. In the entity’s
current year income statement, what amount of depletion is included in cost of sales? COGS 450K
a. 3,600,000 b. 4,050,000 c. 4,800,000 d. 5,400,000 DEPLETION:
600K END INV 150K
12. Depletion expense
a. Includes tangible equipment costs in the depletion base.
b. Excludes intangible development costs from the depletion base.
c. Excludes restoration costs from the depletion base.
d. Is usually part of cost of goods sold.

13. Which statement is incorrect regarding the successful efforts method of accounting for exploration and
evaluation expenditures in the oil and gas industry?
a. Costs incurred in finding, acquiring and developing reserves are typically capitalized on a field-by-field basis.
b. Failure to discover commercially viable reserves means that the expenditure is charged to expense.
c. Capitalized costs are depleted on a field-by-field basis as production occurs.
d. Generally results in a greater deferral of costs during exploration and development and higher
subsequent depletion charges.

14. Which statement is incorrect regarding the full cost method of accounting for exploration and evaluation
expenditures in the oil and gas industry?
a. All costs incurred in searching for, acquiring and developing the reserves in a large geographic cost
center or pool are capitalized.
b. The cost pools are typically depleted on a country basis as production occurs.
c. If exploration efforts in the country or the geological formation are wholly unsuccessful, the
costs are expensed.
d. Is no longer allowed under PFRS 6.

15. Sitar Oil Corporation incurred P4,000,000 in exploration costs for each of 15 oil wells drilled during
the current period. Of the 15 wells drilled, 10 were dry holes. Sitar uses the successful efforts method of
accounting. Assuming that Sitar depletes 30% of the oil discovered in the current period, what amount of
these exploration costs would remain in its statement of financial position at the end of the current period?
a. 6 million b. 14 million c. 20 million d. 42 million
COST 20,000,000 COST 20,000,000
SUCCESSFUL 5 20000000 DR 30% DEPLETION 6000000
UNSUCCESSFUL 10 DEPLETION 6,000,000 CA EXPLO 14,000,000
TOTAL 15
16. Rangoon Mine Co. purchased a mineral mine for P2,640,000 with removable ore estimated at
1,200,000 tons. After it has extracted all the ore, the entity will be required by law to restore the land to its
original condition at an estimated cost of P220,000. The present value of the estimated restoration costs is
P180,000. Rangoon Mine believes it will be able to sell the property afterwards for P300,000. The entity
incurred P360,000 of development costs preparing the mine for production. During the current period, the
entity removed 60,000 and sold 50,000 tons of ore. The depletion for the current period is
a. 120,000 b. 121,500 c. 144,000 d. 145,800

17. IFRIC 20 deals with

a. Exploration for and evaluation of mineral resources
b. Development of natural resources
c. Changes to existing restoration, decommissioning and similar liabilities.
d. Stripping costs in the production phase of a surface mine.

18. In accordance with IFRIC 20, “stripping” means

a. The search for mineral resources, including minerals, oil, natural gas and similar nonregenerative
resources after the entity has obtained legal rights to explore in a specific area.
b. Determination of the technical feasibility and commercial viability of extracting the mineral resource.
c. Removal of mine waste materials (“overburden”) to gain access to mineral ore deposits.
d. Extraction of mineral ore deposits.

19. In accordance with IFRIC 20, production stripping costs shall be accounted for
a. In accordance with the principles of PAS 2.
b. As stripping activity asset.
c. As expenses when incurred.
d. Any of these.

20. Which is incorrect regarding recognition of production stripping costs as an asset in accordance with IFRIC
20?
a. To the extent that the benefit from the stripping activity is realized in the form of inventory
produced, the entity shall account for the costs of that stripping activity in accordance with the
principles of PAS 2 Inventories.
b. To the extent the benefit is improved access to ore, the entity shall recognize these costs as a
non-current asset, if the criteria are met.
c. IFRIC 20 refers to the non-current asset as the ‘stripping activity asset’.
d. The stripping activity asset shall be accounted for as a separate asset.

21. An entity shall recognize a stripping activity asset if, and only if:
a. It is probable that the future economic benefit (improved access to the ore body) associated with
the stripping activity will flow to the entity.
b. The entity can identify the component of the ore body for which access has been improved.
c. The costs relating to the stripping activity associated with that component can be measured reliably.
d. All of these.

22. Which statement is incorrect regarding stripping activity asset?

a. The nature of this existing asset will determine whether the entity shall classify the stripping
activity asset as tangible or intangible.
b. The entity shall initially measure the stripping activity asset at cost
c. After initial recognition, the stripping activity asset shall be carried in the same way as the existing
asset of which it is a part.
d. The stripping activity asset shall be depreciated or amortized on a straight-line basis.

23. In 2020, Lepanto Mining Company purchased property with natural resources for P28,000,000. The property
had a residual value of P5,000,000. However, the company is required to restore the property to its original
condition for P2,000,000.
In 2020, Lepanto spent P1,000,000 in development costs and P3,000,000 in buildings on the property.
Lepanto does not anticipate that the buildings will have utility after the natural resources are removed. In
2021, an amount of P1,000,000 was spent for additional development on the mine. The tonnage mined
and estimated remaining tons for years 2020 to 2022 are as follows:
TONS EXTRACTED TONS REMAINING
2020 - 10,000,000
2021 3,000,000 7,000,000
2022 3,500,000 2,000,000
The entity should recognize depletion for 2022 at
a. 9,450,000 b. 10,150,000 c. 12,040,000 d. 14,245,000

24. An entity has the following items of PPE used in its mining operations:
BUILDING EQUIPMENT
COST 15,000,000 6,000,000
ECONOMIC LIFE 15 YEARS 6 YEARS
BENEFIT CONSUMPTION EVENLY OVER TIME DEPENDS ON USE

The entity expects to deplete the mineral reserves of 200,000 tons in 10 years. The building will be of no
use after the mineral reserves are depleted. 18,000 tons have been extracted in the current year.
Compute current year depreciation for building and equipment.
a. 1,540,000 b. 2,040,000 c. 2,550,000 d. 2,700,000

25. Leyte Company constructed a building costing P15,000,000 on a mine property. The building has an
estimated life of 6 years with no salvage value. After all the resource is removed expectedly over 5 years,
the building will be of no use. The estimated recoverable output from the mine is 1,000,000 tons.
During the first year, Leyte produced 200,000 tons but there was shut down and no output in the second year.
In the third year, Leyte resumed operations and produced 300,000 tons.
Leyte Company should record depreciation of the building in the third year at
a. 3,000,000 b. 2,500,000 c. 3,600,000 d. 4,500,000

26. Which of following is not a similarity in the accounting treatment for depreciation and cost depletion?
a. The estimated life is based on economic or productive life.
b. Assets subject to either are reported in the same classification on the statement of financial position.
c. The rates may be changed upon revision of the estimated productive life used in the original rate
computations.
d. Both depreciation and depletion are based on time.

27. Dividends representing a return of capital to shareholders are not uncommon among companies which
a. Use accelerated depreciation methods.
b. Use straight-line depreciation methods.
c. Recognize both functional and physical factors in depreciation.
d. Do not expect to purchase additional property after depleting existing property.

28. ABC Corp. provides the following balances at the end of the reporting period:
Mine property, at cost 80,000,000
Accumulated depletion 20,000,000
Retained Earnings 10,000,000
Capital liquidated 15,000,000
Depletion based on 100,000 units extracted at P50 per unit 5,000,000
Inventory of resource deposit (20,000 units) 2,000,000

Compute for the maximum amount of dividend that the entity can declare.
a. 20,000,000 b. 14,000,000 c. 15,000,000 d. 13,000,000

END