Ind AS 106: Exploration for and Evaluation of Mineral Resources…

Standard orientation

What Ind AS 106 is designed to achieve

Specify financial reporting for exploration and evaluation expenditures while permitting limited continuity of existing E&E accounting policies.

Scope: Applies only to expenditures incurred after obtaining legal rights to explore a specific area and before technical feasibility and commercial viability of extraction are demonstrable. It does not govern pre-licence, development or production activities.

Start point

After legal rights to explore a specific area are obtained.

End point

When technical feasibility and commercial viability are demonstrable.

Initial measurement

Cost, using a consistently applied policy defining eligible expenditure.

Impairment

Test when E&E-specific facts indicate carrying amount may not be recoverable.

Reading method: Requirements are paraphrased and grouped where they form one integrated rule. Apply the current notified standard for final conclusions.

Full standard map

Paragraph-by-paragraph register

Paragraphs	Requirement and simple decode
1–2	Objective Requires limited improvements, E&E-specific impairment indicators and explanatory disclosures.
3	Scope inclusion Applies to exploration and evaluation expenditures incurred by an entity.
4	Scope limitation Does not address other accounting by extractive-industry entities.
5(a)	Pre-exploration exclusion Does not apply before legal rights to explore a specific area are obtained.
5(b)	Development exclusion Does not apply after technical feasibility and commercial viability of extraction are demonstrable.
6–7	Temporary Ind AS 8 exemption An entity developing E&E recognition and measurement policies applies Ind AS 8 paragraph 10 but is exempt from specified hierarchy paragraphs.
8	Initial measurement Measure exploration and evaluation assets at cost.
9	Eligible cost policy Develop and consistently apply a policy considering association with finding specific mineral resources.
9(a)–(f)	Potential cost components Examples include rights acquisition, topographical/geological/geochemical studies, exploratory drilling, trenching, sampling and technical/commercial viability evaluation.
10	Development expenditure Do not classify development expenditure as E&E assets; apply the Conceptual Framework and Ind AS 38 or other relevant standards.
11	Removal and restoration Recognise restoration obligations under Ind AS 37 when incurred through E&E activity.
12	Subsequent measurement Apply either the cost model or revaluation model consistently with Ind AS 16 or Ind AS 38 based on classification.
13–14	Accounting-policy changes Change an E&E policy only when it makes financial statements more relevant and no less reliable, or more reliable and no less relevant.
15–16	Classification Classify E&E assets as tangible or intangible based on nature; drilling rigs may be tangible, drilling rights and geological data intangible.
17	Reclassification Stop E&E classification when technical feasibility and commercial viability are demonstrable; test for impairment before reclassification.
18	Impairment trigger Assess E&E assets for impairment when facts and circumstances suggest carrying amount may exceed recoverable amount.
19	Measurement of impairment Measure impairment under Ind AS 36 once an indicator exists, subject to the special level of assessment.
20(a)	Rights expiry Indicator arises when exploration rights expired or will expire soon and renewal is not expected.
20(b)	No further budget Indicator arises when substantive further exploration expenditure is neither budgeted nor planned.
20(c)	Unsuccessful area Indicator arises when no commercially viable quantities were found and the entity decides to discontinue.
20(d)	Insufficient recovery evidence Indicator arises when data indicate the carrying amount is unlikely to be recovered fully from successful development or sale.
21–22	Level of impairment test Determine a policy for allocation to CGUs or groups of CGUs; the test level may be larger than under ordinary Ind AS 36, but not larger than an operating segment before aggregation.
23	Disclosure objective Disclose information identifying and explaining amounts arising from E&E activities.
24	Minimum disclosures Disclose accounting policies and amounts of assets, liabilities, income, expense and operating/investing cash flows from E&E.
25	Class disclosures Treat E&E assets as a separate class and provide Ind AS 16 or Ind AS 38 disclosures consistently with tangible/intangible classification.
26	Effective date Applies from the notified effective date and subsequent amendments.
27	Transition impracticability Provides limited relief when applying specific information requirements to prior periods is impracticable.
Appendix A	Definitions Defines E&E assets, E&E expenditures and exploration and evaluation of mineral resources.

Major areas decoded

Technical requirements in simple language

The scope corridor

The standard covers a narrow corridor between obtaining legal rights and demonstrating technical feasibility and commercial viability.

Policy continuity with guardrails

Entities may retain diverse E&E capitalisation policies, but must define them, apply them consistently and improve them only under the modified Ind AS 8 test.

Unit of account

Area-of-interest, field or licence-level cost pools should align with how specific mineral resources are sought and monitored.

Tangible versus intangible

Classification follows the nature of the asset, not the industry label. Equipment and vehicles can be tangible; exploration rights and data can be intangible.

Impairment indicators

The standard uses practical project indicators such as licence expiry, cessation of budget and failed exploration, then refers measurement to Ind AS 36.

Development hand-off

Before moving out of E&E classification, test impairment and then apply the relevant development/production standards.

Full-cost caution

Relief from the Ind AS 8 hierarchy applies only to E&E assets, not pre-exploration, development or production spending.

Visual learning

Finin2min decision map

Editable SVG and high-resolution PNG versions are included in this batch.

Exceptions and highlights

What professionals frequently overlook

Pre-licence expenditure is outside Ind AS 106.
Development expenditure after feasibility and viability is outside Ind AS 106.
The temporary Ind AS 8 exemption does not extend to activities outside the E&E phase.
E&E assets are initially measured at cost.
Tangible and intangible components are classified separately.
E&E-specific impairment indicators supplement the general model.
The impairment allocation level cannot exceed an operating segment before aggregation.
Reclassification out of E&E requires an impairment test first.

Practical application

Transaction examples

Fact pattern

Treatment

Reason

Purchase of exploration licence

Potential E&E intangible asset

Legal rights have been obtained and the cost relates to a specific area.

Geological survey after licence award

Potential E&E asset

Included if the entity’s consistent policy capitalises such costs.

Bid preparation before licence

Expense or other applicable treatment

It is pre-exploration and outside Ind AS 106.

Mine development after commercial viability

Not an E&E asset

Apply development-stage standards.

Exploration drill rig

Tangible E&E asset or PPE component

Classification follows nature and usage.

Licence expires without renewal

Impairment indicator

Recoverability must be tested.

Accounting mechanics

Illustrative journal entries

Entries are simplified and may require tax, fair-value or presentation adjustments.

Capitalised E&E expenditure

Dr Exploration and evaluation asset Cr Cash / Payable

Restoration obligation

Dr E&E asset or relevant expense Cr Provision for restoration

Impairment

Dr Impairment loss Cr E&E asset / Accumulated impairment

Reclassification to development asset

Dr Development / Mine asset Cr Exploration and evaluation asset

CA / finance / boardroom cases

Applied case studies

1. Pre-licence seismic study

Applied case

An oil company conducts seismic surveys before obtaining legal rights.

Finin2min analysis: Ind AS 106 does not apply. Use Ind AS 8 and relevant standards to determine whether expense or another asset is appropriate.

2. Area-of-interest policy

Applied case

An entity capitalises all drilling in a national cost pool.

Finin2min analysis: Assess whether the policy is relevant and reliable and whether costs can be associated with specific mineral resources; an excessively broad pool may obscure impairment.

3. Budget stopped

Applied case

No further exploration is planned for one licence, although the legal right remains.

Finin2min analysis: This is an impairment indicator even without licence expiry.

4. Commercial viability achieved

Applied case

A feasibility study proves commercially recoverable reserves.

Finin2min analysis: Test the E&E asset for impairment, then reclassify to the relevant development asset category.

5. Additional interest in joint operation

Applied case

An entity acquires a further interest in a joint operation that constitutes a business.

Finin2min analysis: Apply Ind AS 111 and the applicable business-combination principles to the acquired share; do not assume all amounts remain simple E&E costs.

Global comparison

Ind AS versus IFRS and US GAAP

Topic	Ind AS	IFRS	US GAAP
Scope	Narrow E&E phase.	Broadly aligned with IFRS 6.	US GAAP uses industry-specific successful-efforts/full-cost guidance.
Policy relief	Modified Ind AS 8 hierarchy for E&E recognition/measurement.	Aligned.	US GAAP detailed industry models differ.
Initial measurement	Cost.	Aligned.	Depends on successful-efforts or full-cost model.
Impairment	E&E indicators, then Ind AS 36 measurement.	Aligned with IFRS 6/IAS 36.	US impairment units and tests differ.
Development hand-off	Outside Ind AS 106 after feasibility/viability.	Aligned.	US stage boundaries differ by guidance.

Implementation lens

Implications for key stakeholders

Geology/Operations

Provide licence, drilling, reserve and project-status evidence.

CFO

Approve capitalisation and cost-pool policies.

Legal

Track exploration rights and renewal status.

Valuation

Support recoverability and commercial viability.

Audit committee

Challenge stale projects and broad cost pools.

Quality-control watchlist

Common errors and exam traps

Capitalising costs incurred before legal exploration rights.
Continuing E&E accounting after commercial viability.
Applying full-cost relief outside the E&E phase.
Using an undefined or inconsistently applied capitalisation policy.
Classifying every E&E item as intangible.
Ignoring restoration obligations.
Waiting for formal abandonment before impairment.
Testing impairment at a level larger than an operating segment before aggregation.
Reclassifying without an impairment test.
Omitting E&E cash-flow disclosures.

Finin2min Q&A

Frequently asked questions

1. When does Ind AS 106 start?

After legal rights to explore a specific area are obtained.

2. When does it stop?

When technical feasibility and commercial viability are demonstrable.

3. Must all exploration costs be capitalised?

No; the entity applies a defined, consistent policy.

4. Can E&E assets be tangible?

Yes.

5. What triggers impairment?

Licence, budget, unsuccessful exploration or recovery indicators, among others.

6. Which standard measures the impairment loss?

Ind AS 36.

Two-minute revision

Finin2min cheat sheet

LEGAL RIGHT OBTAINED → DEFINE COST POLICY → CAPITALISE AT COST → TANGIBLE/INTANGIBLE → E&E INDICATORS → IMPAIR → RECLASSIFY

Validation register

Primary and authoritative sources

ICAI Compendium 2025–26 — Volume IPrimary or authoritative validation source.
Open source ↗

ICAI Ind AS 106 text archivePrimary or authoritative validation source.
Open source ↗

IFRS Foundation — IFRS 6Primary or authoritative validation source.
Open source ↗

Review date: 26 June 2026. Recheck later MCA notifications and ICAI compendiums before applying to a later reporting period.