Ind AS 106 explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
Ind AS 106 provides interim guidance for accounting for expenditure on the exploration for and evaluation of mineral resources. It lets entities retain existing policies, prescribes cost or revaluation measurement, and requires impairment testing for exploration and evaluation assets.
Overview
Ind AS 106, Exploration for and Evaluation of Mineral Resources, notified under the Companies (Indian Accounting Standards) Rules, 2015, addresses a narrow but important phase in the extractive industries. Because a comprehensive international standard on extractive activities is still awaited, Ind AS 106 acts as an interim measure, permitting continuity of practice while setting minimum requirements.
Scope and Applicability
The standard applies only to exploration and evaluation expenditure — costs incurred after an entity has obtained the legal rights to explore a specific area but before the technical feasibility and commercial viability of extracting a mineral resource are demonstrable. Expenditure before obtaining exploration rights, and development or production costs after viability is established, fall outside Ind AS 106.
Recognition and Measurement
Exploration and evaluation assets are recognised initially at cost. An entity sets an accounting policy specifying which expenditures are recognised as assets — for example, acquisition of exploration rights, topographical and geological studies, exploratory drilling, trenching and sampling. After initial recognition, the entity applies either the cost model or the revaluation model consistently to the class of assets.
| Phase | Standard applied |
|---|---|
| Before exploration rights obtained | Outside Ind AS 106 |
| Exploration and evaluation phase | Ind AS 106 |
| After feasibility/viability established | Reclassify; apply Ind AS 16/38 and others |
Classification and Reclassification
Exploration and evaluation assets are classified as tangible (for example, drilling rigs) or intangible (for example, drilling rights), and this classification is applied consistently. Once technical feasibility and commercial viability are demonstrable, the assets cease to be exploration and evaluation assets, are tested for impairment before reclassification, and are then accounted for under the relevant standards.
Impairment
Ind AS 106 modifies the impairment triggers of Ind AS 36. An entity assesses exploration and evaluation assets for impairment when facts and circumstances suggest the carrying amount may not be recoverable — for instance, when the period for which the entity has the right to explore has expired or will expire soon, or when sufficient data suggests the resource is unlikely to be commercially recoverable.
Worked Example
A mining company obtains an exploration licence and incurs ₹2,00,00,000 on geological surveys and exploratory drilling. These costs are capitalised as exploration and evaluation assets under its stated policy. Near year-end, the licence period is nearing expiry with no renewal expected and results are poor, triggering an impairment review. If the recoverable amount is assessed at ₹50,00,000, an impairment loss of ₹1,50,00,000 is recognised in profit or loss.
Presentation and Disclosure
An entity discloses its accounting policies for exploration and evaluation expenditure and the amounts of assets, liabilities, income, expense and cash flows arising from exploration for and evaluation of mineral resources. These disclosures help users understand the extent of extractive activity captured under this interim regime.