Question 1

Which of the following measurements is unlikely to form part of any new accounting standard for the extractive industries?

Accepted Answer

A)  historical 
B)  fair value 
C)  present value 
D)  market value 
A)  historical 
B)  fair value 
C)  present value 
D)  market value

Question 2

Costs carried forward for an abandoned area of interest should be expensed in the period the decision to abandon was made.

Accepted Answer

A) True 
 B)False

Question 3

AASB 6 requires the separate disclosure of:

Accepted Answer

A)  amounts recognised in its financial report arising from the exploration for and evaluation of mineral resources. 
B)  its accounting policies for exploration and evaluation expenditures including the recognition of exploration and evaluation assets. 
C)  amounts 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. 
A)  amounts recognised in its financial report arising from the exploration for and evaluation of mineral resources. 
B)  its accounting policies for exploration and evaluation expenditures including the recognition of exploration and evaluation assets. 
C)  amounts 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.

Question 4

The costs-written-off method is to:

Accepted Answer

A)  write off all exploration and evaluation costs and not reinstate them if economically recoverable reserves are subsequently discovered. 
B)  write off all evaluation and development costs unless it is considered likely that economically recoverable reserves will be identified within the next financial period. 
C)  write off all exploration and evaluation costs but reinstate them if economically recoverable reserves are subsequently discovered. 
D)  write off all deferred exploration and development costs as soon as it is determined that the reserves in the area of interest are not economically recoverable. 
A)  write off all exploration and evaluation costs and not reinstate them if economically recoverable reserves are subsequently discovered. 
B)  write off all evaluation and development costs unless it is considered likely that economically recoverable reserves will be identified within the next financial period. 
C)  write off all exploration and evaluation costs but reinstate them if economically recoverable reserves are subsequently discovered. 
D)  write off all deferred exploration and development costs as soon as it is determined that the reserves in the area of interest are not economically recoverable.

Question 5

Recent developments in the industry show a number of entities recognising the need to also be accountable for social and environmental performance in addition to financial performance.What reporting innovations have been observed in the industry to support triple-bottom-line reporting?

Accepted Answer

Recent developments in the industry have

Question 6

AASB 6 only allows a choice between capitalisation or expensing of exploration and evaluation costs when the rights to tenure of the area of interest are current and these expenditures are expected to be recouped through successful development or sale.

Accepted Answer

A) True 
 B)False

Question 7

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

Accepted Answer

A)  Writing off the carrying amount of exploration and evaluation assets and recognising an impairment loss. 
B)  Reclassifying the carrying amount of exploration and evaluation assets to another other area of interest. 
C)  Re-instating previously written off exploration and evaluation assets. 
D)  Expensing machinery that can be dismantled and used on another area of interest. 
A)  Writing off the carrying amount of exploration and evaluation assets and recognising an impairment loss. 
B)  Reclassifying the carrying amount of exploration and evaluation assets to another other area of interest. 
C)  Re-instating previously written off exploration and evaluation assets. 
D)  Expensing machinery that can be dismantled and used on another area of interest.

Question 8

When moving from the exploration and evaluation phase to subsequent phases of operations,the reclassified costs are labelled:

Accepted Answer

A)  mining expenses. 
B)  assets under construction. 
C)  costs of goods sold. 
D)  amortised costs. 
A)  mining expenses. 
B)  assets under construction. 
C)  costs of goods sold. 
D)  amortised costs.

Question 9

Mirza and Zimmer (1999)found that only a small number of companies were undertaking upward asset revaluations.The reasons for their reluctance to undertake this practice included:

Accepted Answer

A)  a desire to remain 'small' in keeping with the political-cost hypothesis. 
B)  Any revaluations made are not permitted to be recognised as income by the relevant accounting standard. 
C)  In an attempt not to overstate assets management preferred not to revalue items that are subject to a great deal of uncertainty. 
D)  all of the given answers. 
A)  a desire to remain 'small' in keeping with the political-cost hypothesis. 
B)  Any revaluations made are not permitted to be recognised as income by the relevant accounting standard. 
C)  In an attempt not to overstate assets management preferred not to revalue items that are subject to a great deal of uncertainty. 
D)  all of the given answers.

Question 10

Costs that have been carried forward for a specific area of interest are to be amortised against revenue earned during the production phase.How is the amortisation of the costs to be calculated?

Accepted Answer

A)  Any generally accepted amortisation method may be used except for the inverted sum-of-years-digits method. 
B)  The costs should be amortised in proportion to the expected revenue stream, so that a higher proportion of costs are matched against higher revenue streams, especially where they occur as a result of greater quality product in the early years of production. 
C)  The costs should be amortised straight-line over a period of not greater than 20 years. 
D)  The costs should be allocated over the life of the economically recoverable reserve in terms of production output or in terms of time in circumstances such as where there is a fixed period of tenure or the limiting factor is the length of the mining right. 
A)  Any generally accepted amortisation method may be used except for the inverted sum-of-years-digits method. 
B)  The costs should be amortised in proportion to the expected revenue stream, so that a higher proportion of costs are matched against higher revenue streams, especially where they occur as a result of greater quality product in the early years of production. 
C)  The costs should be amortised straight-line over a period of not greater than 20 years. 
D)  The costs should be allocated over the life of the economically recoverable reserve in terms of production output or in terms of time in circumstances such as where there is a fixed period of tenure or the limiting factor is the length of the mining right.

Question 11

If expenditures in any of the five phases of the extractive industry are not considered likely to lead to an economically viable project:

Accepted Answer

A)  a post-balance-date adjustment to the amounts recorded as assets in the earlier period should be made to recognise that they were not assets at that time. 
B)  the costs should be written off against a reserve created by revaluing the non-current assets held in relation to projects based on a similar natural substance. 
C)  the costs should be deferred and amortised against the total revenue earned from all projects based on a similar natural substance. 
D)  the costs should be written off as a loss. 
A)  a post-balance-date adjustment to the amounts recorded as assets in the earlier period should be made to recognise that they were not assets at that time. 
B)  the costs should be written off against a reserve created by revaluing the non-current assets held in relation to projects based on a similar natural substance. 
C)  the costs should be deferred and amortised against the total revenue earned from all projects based on a similar natural substance. 
D)  the costs should be written off as a loss.

Question 12

Positive accounting theory predicts that large sized entities will choose not to capitalise their exploration and evaluation expenditures to reduce likelihood of violating debt covenants.

Accepted Answer

A) True 
 B)False

Question 13

Australian companies who voluntarily adopt the Australian Minerals Code for Environmental Management are required to report their performance against specifically nominated environmental performance indicators,such as greenhouse gas emissions.

Accepted Answer

A) True 
 B)False

Question 14

On 1 July 2012 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 2013 the following costs were incurred: $$\begin{array} { | l | r | r | r | } 
\hline \text { Site } & \text { Acquisition costs } ( \$ \mathrm {~m} ) & \text { Exploration and evaluation costs } ( \mathrm { Sm } ) & \text { Total(\$m) } \
\hline \text { Western } & 9 & 20 & 29 \
\hline \text { Eastern } & \underline{5} & \underline{15} & \underline{20} \
\hline & \underline{14} & \underline{35} & \underline{49} \
\hline
\end{array}$$ The eastern site is found not to be economically viable and is abandoned in the second half of 2013.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 2014,10 000 tonnes are extracted with associated production costs of $1 million and 8000 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 2013 and 2014 using the method required by AASB 1022 (round to the nearest $10 000)?

Accepted Answer

A) 
  
B) 
  
C) 
  
D) 
  
A) 
  
B) 
  
C) 
  
D)

Question 15

Research conducted in Australia suggests that only a limited number of companies involved in the extractive industries choose to revalue their reserves to their expected fair value.Reasons suggested by the researchers for the low number of revaluing firms include which of the following?

Accepted Answer

A)  Since firms in the extractive industries are generally considered to be subject to low levels of political scrutiny, they would prefer to record lower asset levels and higher profits. 
B)  The increase in value would be reflected in 'other comprehensive income'. 
C)  The companies in the industry generally have high levels of debt so maintaining the carrying value of reserves at cost improves their leverage measures. 
D)  Maintaining the carrying value of reserves at cost makes the company a less attractive take-over target. 
A)  Since firms in the extractive industries are generally considered to be subject to low levels of political scrutiny, they would prefer to record lower asset levels and higher profits. 
B)  The increase in value would be reflected in 'other comprehensive income'. 
C)  The companies in the industry generally have high levels of debt so maintaining the carrying value of reserves at cost improves their leverage measures. 
D)  Maintaining the carrying value of reserves at cost makes the company a less attractive take-over target.

Exam 20: Accounting for the Extractive Industries

Which of the following measurements is unlikely to form part of any new accounting standard for the extractive industries?

Costs carried forward for an abandoned area of interest should be expensed in the period the decision to abandon was made.

AASB 6 requires the separate disclosure of:

The costs-written-off method is to:

Recent developments in the industry show a number of entities recognising the need to also be accountable for social and environmental performance in addition to financial performance.What reporting innovations have been observed in the industry to support triple-bottom-line reporting?

AASB 6 only allows a choice between capitalisation or expensing of exploration and evaluation costs when the rights to tenure of the area of interest are current and these expenditures are expected to be recouped through successful development or sale.

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

When moving from the exploration and evaluation phase to subsequent phases of operations,the reclassified costs are labelled:

Mirza and Zimmer (1999)found that only a small number of companies were undertaking upward asset revaluations.The reasons for their reluctance to undertake this practice included:

Costs that have been carried forward for a specific area of interest are to be amortised against revenue earned during the production phase.How is the amortisation of the costs to be calculated?

If expenditures in any of the five phases of the extractive industry are not considered likely to lead to an economically viable project:

Positive accounting theory predicts that large sized entities will choose not to capitalise their exploration and evaluation expenditures to reduce likelihood of violating debt covenants.

Australian companies who voluntarily adopt the Australian Minerals Code for Environmental Management are required to report their performance against specifically nominated environmental performance indicators,such as greenhouse gas emissions.

Research conducted in Australia suggests that only a limited number of companies involved in the extractive industries choose to revalue their reserves to their expected fair value.Reasons suggested by the researchers for the low number of revaluing firms include which of the following?

An Overview of the Australian External Reporting Environment

The Conceptual Framework of Accounting and Its Relevance to Financial Reporting

Theories of Accounting

An Overview of Accounting for Assets

Depreciation of Property, plant and Equipment

Revaluations and Impairment Testing of Non-Current Assets

Inventory

Accounting for Intangibles

Accounting for Heritage Assets and Biological Assets

An Overview of Accounting for Liabilities

Accounting for Leases

Accounting for Employee Benefits

Share Capital and Reserves

Accounting for Financial Instruments

Revenue Recognition Issues

The Statement of Comprehensive Income and Statement of Changes in Equity

Accounting for Share-Based Payments

Accounting for Income Taxes

The Statement of Cash Flows

Accounting for General Insurance Contracts

Accounting for Superannuation Plans

Events Occurring After the End of the Reporting Period

Segment Reporting

Related Party Disclosures

Earnings Per Share

Accounting for Group Structures

Further Consolidation Issues I: Accounting for Intragroup Transactions

Further Consolidation Issues II: Accounting for Non-Controlling Interests

Further Consolidation Issues IV: Accounting for Changes in the Degree of Ownership of a Subsidiary

Accounting for Equity Investments,including Investments in Associates and Joint Arrangements

Accounting for Foreign Currency Transactions

Translating the Financial Statements of Foreign Operations

Accounting for Corporate Social Responsibility

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