Exploration Cost — Expensed (Pre-IFRS 6 Threshold)
Recording early-stage geological survey and exploration costs before a mineral resource is identified.
| Account Name | Type | Debit ($) | Credit ($) |
|---|---|---|---|
| Exploration Expense | Expense (+) | 850,000.00 | - |
| Cash / Accounts Payable | Asset/Liability (-) | - | 850,000.00 |
💡 Accountant's Note
Early-stage exploration costs (initial geological mapping, geophysical surveys, geochemical sampling) incurred before the company has rights to explore a specific area or before the technical feasibility of extraction is demonstrated are generally expensed. Once exploration rights are obtained, the entity may elect to capitalise subsequent exploration and evaluation costs under IFRS 6.
Practitioner & Systems Framework
💻 ERP Architecture
Exploration costs are tracked in the ERP by project code corresponding to each exploration licence or prospect area. Before exploration rights are secured, all costs flow directly to the exploration expense account in the P&L. Once a licence is obtained, the company's accounting policy (capitalise or expense under the IFRS 6 election) determines subsequent treatment. The project code structure captures costs by licence area, enabling licence-level cost tracking for impairment assessment. Geological and geophysical (G&G) costs are often the largest component — tracked separately from drilling and sampling costs.
⚠️ Audit Flags
Auditors test whether the company has applied its IFRS 6 accounting policy consistently — the policy election (capitalise or expense E&E costs) must be applied consistently across all exploration areas. Confirm that costs incurred before exploration rights are obtained are not capitalised. Test the project code structure to ensure costs are correctly allocated to the right licence area. Review the cut-off between pre-exploration (expensed) and exploration phase (policy-dependent) for licence areas recently acquired.
📄 Required Documentation
Geological survey reports, geophysical and geochemical survey invoices, exploration licence application records, IFRS 6 accounting policy documentation, project code register by licence area, cost allocation schedule, and exploration budget vs. actual report.
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