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Unformatted text preview: e classified as tangible or intangible assets depending on their nature. Tangible E&E assets may include the items of plant and equipment used for exploration activity, such as vehicles and drilling rigs. Intangible E&E assets may include costs of exploration permits and licences as well as depreciation of tangible assets consumed in developing intangible assets such as exploratory wells. Definition of E&E expenditure
The stage of a project is important in determining the accounting standards to be applied IFRS 6 applies only to E&E expenditure. Outside of the scope of IFRS 6 the usual IFRS accounting requirements apply, including in respect of impairment testing. The standard provides a non-exhaustive list of E&E expenditure that may be capitalised, including the cost of geological and geophysical studies, the acquisition of rights to explore, exploratory drilling, trenching and sampling. The stage of projects needs to be monitored to ensure that accounting policies are applied appropriately. IFRS 6 excludes pre-licence expenditure from the scope of E&E costs, implying that E&E activities commence on acquisition of the legal rights to explore an area. Also, IFRS 6 does not apply to expenditure incurred after the technical feasibility and commercial viability of extracting the oil and gas are demonstrable. Determining when this is demonstrable, and the level of detail at which this assessment should be made, can involve considerable judgement and requires close communication between finance and technical spets. First-time adoption
Oil and gas deemed cost election There is an oil and gas industry-specific exemption in IFRS 1 First-time Adoption of IFRS. Oil and gas companies can elect to measure E&E assets at the amount determined under previous GAAP at the date of transition to IFRS. Development and production assets can be measured at the amount determined for the cost centre under previous GAAP , with an allocation to the underlying assets on a pro rata basis using reserve volumes or reserve values at transition date. This exemption can assist oil and gas companies in preparing th...
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