How to Expense Pre-Licence Geological and Geophysical Studies Before an Exploration Licence Is Secured
Expensing G&G studies and regional basin analysis costs incurred before an exploration licence is acquired.
| Account Name | Type | Debit ($) | Credit ($) |
|---|---|---|---|
| Exploration Expense — G&G Studies | Expense (+) | 800,000.00 | - |
| Cash / Accounts Payable (Consultant) | Asset/Liability (-) | - | 800,000.00 |
💡 Accountant's Note
Pre-licence G&G studies that do not relate to a specific exploration area with rights are expensed as incurred. They cannot be capitalized as E&E assets under IFRS 6 because no exploration right yet exists.
Practitioner & Systems Framework
💻 ERP Architecture
The trigger for capitalizing vs. expensing G&G is whether an exploration right (licence, permit, or concession) exists at the time the expenditure is incurred. Pre-licence: expense. Post-licence: capitalize as E&E. G&G data purchased from data vendors (seismic data libraries) for regional evaluation of unlicensed acreage is expensed. If a licence is subsequently acquired and the data becomes directly attributable to the licensed area, some companies choose to capitalize the data cost retrospectively — this policy must be consistent and disclosed.
⚠️ Audit Flags
Auditors check the timing of licence award vs. G&G expenditure dates. G&G costs capitalized before the licence effective date are misclassified. In competitive bid rounds where G&G is conducted before the bid is submitted (no licence yet awarded), all pre-bid G&G costs must be expensed. If the bid is unsuccessful, any pre-bid costs already expensed require no further adjustment.
📄 Required Documentation
G&G consultant invoices and scope of work, exploration licence effective date, timeline of G&G activity vs. licence award, accounting policy on E&E capitalization (consistent treatment of pre-licence vs. post-licence G&G), and exploration budget approvals.
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Expert Analysis by Qusai Ahmad
General Accountant Supervisor & IFRS Specialist
Specialized in SAP GUI automation and Middle Eastern tax compliance. Building digital tools for the next generation of finance leaders.
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