Competition market capitalisation for example the

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Unformatted text preview: or cash losses. For example, a significant downward movement in the oil price may result in operating cash losses and represent a trigger for impairment. Technological obsolescence. Competition. Market capitalisation. For example, the carrying amount of the oil and gas company's net assets exceeds its market capitalisation. This may be a particular risk for companies with large E&E assets. Significant regulatory changes. For example, increased regulation of environmental rehabilitation processes. Physical damage to the asset. For example, damage to a drilling rig caused by an explosion. Significant adverse effect on the company that will change the way in which the asset is used/ expected to be used. For example, the re-nationalisation requirements of some governments may lead to some projects being diluted to accommodate a government interest. E&E assets are exempt from certain impairment testing requirements IFRS 6 requires E&E assets to be assessed for impairment in two circumstances. When facts and circumstances suggest that the carrying amount of an E&E asset may exceed its recoverable amount. When E&E activities have been completed, i.e. when the commercial viability and technical feasibility of that asset have been determined and prior to reclassification to development assets. The standard provides the following examples of `trigger events' that indicate that an E&E asset should be tested for impairment: expiration of the right to explore; substantive expenditure on further exploration for and evaluation of mineral resources in the specific area is neither budgeted nor planned; commercially viable reserves have not been discovered and the company plans to discontinue activities in the specific area; and data exists to show that while development activity will proceed, the carrying amount of the E&E asset will not be recovered in full through such activity. This provides relief from the general requirements of IFRS, which require annual impairment testin...
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