Ind AS 106 – Exploration for and Evaluation of Mineral Resources: Complete Guide
Content updated 21 October 2026. Dates, reporting basis and sources are stated beside the revised examples.
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Reviewed by CA Nikhil Gupta · Last reviewed 4 June 2025
📋 Table of Contents
| Structural block | What it covers |
|---|---|
| Objective and scope | A limited-scope, largely permissive standard covering expenditure incurred by an entity in connection with the exploration for and evaluation of mineral resources, before the technical feasibility and commercial viability of extraction is demonstrable. |
| Recognition | Permits an entity to continue using whatever accounting policy it applied immediately before adopting this standard for exploration and evaluation expenditure, provided the policy results in relevant and reliable information — a deliberate interim relief pending a fuller standard. |
| Measurement at recognition and subsequently | Exploration and evaluation assets are measured at cost on initial recognition; subsequently, an entity chooses either the cost model or the revaluation model, applied consistently. |
| Classification | Exploration and evaluation assets are classified as tangible or intangible according to the nature of the assets acquired, and this classification is applied consistently. |
| Impairment | Exploration and evaluation assets are assessed for impairment when facts and circumstances suggest the carrying amount may exceed recoverable amount (e.g. the period for exploration rights has expired, or a decision has been made to discontinue exploration in a specific area) — measured under Ind AS 36 principles but the level at which impairment is assessed may combine one or more cash-generating units. |
| Disclosure | Accounting policies for exploration and evaluation expenditure, and the amounts of assets, liabilities, income and expense, plus operating and investing cash flows, arising from exploration and evaluation of mineral resources. |
1. Overview & Scope
Ind AS 106 was designed as a temporary standard — recognizing that mineral resource accounting is complex and industry practices vary widely globally. It permits entities to continue existing accounting policies for E&E expenditures while requiring impairment testing when facts suggest the capitalized costs may not be recoverable.
Applies to: Expenditures incurred in connection with exploration for and evaluation of mineral resources (oil, natural gas, coal, iron ore, gold, copper, etc.)
Does NOT apply to:
- Expenditure before the entity obtains the legal right to explore a specific area. Acquisition of the exploration right itself can form part of E&E cost under the chosen policy.
- Expenditures incurred after technical feasibility and commercial viability are demonstrable (development phase — Ind AS 16/38)
- Production activities
2. Phases of Mineral Resource Activity
| Phase | Description | Applicable Standard |
|---|---|---|
| Pre-licence | Before acquiring licence to explore; general industry research | Outside Ind AS 106; apply the relevant standard. The issuer policies below expense pre-rights exploration expenditure. |
| Exploration & Evaluation (E&E) | After licence acquired; searching for mineral resources and assessing technical/commercial viability | Ind AS 106 — entity may capitalize or expense per policy |
| Development | After technical feasibility & commercial viability demonstrated; constructing mines, wells, extraction facilities | Ind AS 16 (PPE) and/or Ind AS 38 (Intangibles) |
| Production | Extracting mineral resources; selling output | Ind AS 2 (inventory), Ind AS 115 (revenue), Ind AS 16 (depletion) |
| Decommissioning | Site restoration and closing operations | Ind AS 37 (provisions) and Ind AS 16 (ARO) |
3. Recognition of E&E Assets
Ind AS 106 grants companies significant flexibility — entities may develop their own accounting policy to capitalize or expense E&E expenditures, provided the policy results in relevant and reliable information.
3.1 What Can Be Capitalized as E&E Assets?
- Acquisition of rights to explore (licence fees, lease acquisition costs)
- Topographical, geological, geochemical and geophysical studies
- Exploratory drilling and equipping exploratory wells, where included by the entity's recognition policy
- Trenching, sampling, and activities related to evaluating technical and commercial viability
- Depreciation of plant and equipment used during E&E activities
3.2 Costs outside E&E capitalisation
- Pre-licence costs (general research before licence)
- Administrative overheads not directly attributable to E&E activities
- Development expenditure is outside E&E recognition under Ind AS 106. Assess it under the relevant asset standard; leaving the E&E phase does not itself require expensing the development cost.
Cr Bank / Accounts Payable 8,00,00,000
Cr Exploration & Evaluation Asset 12,00,00,000
3.3 Classification — Tangible vs Intangible
E&E assets are classified as either tangible or intangible based on nature:
- Tangible E&E assets: Drilling rigs, vehicles, equipment used during exploration
- Intangible E&E assets: Drilling rights, seismic data, geological studies
4. Measurement after recognition
After initial recognition at cost, E&E assets are measured using either the cost model or the revaluation model (consistent with Ind AS 16 for tangible, or Ind AS 38 for intangible E&E assets).
The company examples below describe their disclosed policies and balances. They do not establish a rule that every mining company uses the same recognition or measurement model.
Exploration expenditure awaiting the viability decision is distinct from equipment already in use. Depreciation of rigs or other equipment consumed in exploration can form part of E&E cost. Assess impairment before reclassification; depreciation or amortisation of the resulting asset follows the applicable standard and its availability for use. A write-off is an expense, not the start of amortisation.
5. Impairment of E&E Assets
Ind AS 106 requires impairment testing when facts and circumstances suggest the carrying amount of E&E assets may exceed their recoverable amount. This is the most critical judgement for oil and mining companies.
Impairment Indicators (Ind AS 106 Para 20)
- The entity's right to explore the specific area has expired or will expire in the near future without renewal
- Substantive expenditure on further exploration is neither budgeted nor planned
- Exploration has not led to discovery of commercially viable quantities and the entity has decided to discontinue exploration
- Sufficient data exists to indicate that the carrying amount is unlikely to be recovered through development or sale
Impairment Testing — CGU Grouping
Under paragraphs 21–22, an entity sets a consistent policy for allocating E&E assets to CGUs or groups of CGUs. Each allocation unit or group must be no larger than an operating segment under Ind AS 108. That is a ceiling, not a requirement to use a whole segment or an automatic permission to offset every unsuccessful project against profitable operations. Measure any resulting impairment under Ind AS 36.
Cr Exploration & Evaluation Asset 45,00,00,000
(Charged to P&L under "Exploration write-offs")
6. Disclosure Requirements
Ind AS 106 requires disclosure of:
- Accounting policies for E&E expenditures — specifically what is capitalized vs expensed
- Amounts of assets, liabilities, income, expense, and operating and investing cash flows arising from E&E activities (paragraph 24)
- E&E assets treated as a separate asset class, with the disclosures required by Ind AS 16 or Ind AS 38 consistently with their classification (paragraph 25)
- Information about impairment losses and reversals
7. Case Studies: Indian Companies
⛽ Case Study 1 — ONGC: follow the exploratory-well roll-forward (FY2024–25)
Reporting basis: ONGC standalone financial statements for the year ended 31 March 2025. The report uses ₹ million; amounts below are converted to ₹ crore by dividing by 10 and rounded to two decimals.
- Recognition: exploratory-area survey/prospecting costs are expensed as incurred. Drilling and equipping exploratory/appraisal wells is initially capitalised pending assessment, then transferred on completion or expensed when dry or of no further use (policies 3.6(ii) and 3.8).
- Impairment grouping: note 48.1 tests onshore fields together at the Asset level where common facilities make them interdependent; offshore generally uses a field, cluster or group of clusters. “Onshore” and “Offshore” are not automatically two CGUs.
- Decommissioning: note 24.1 reports a total provision of ₹47,141.57 crore and FY25 discount unwinding of ₹2,898.71 crore. These are company-wide balances, not an offshore-only estimate.
What this teaches: distinguish annual spend, an asset transfer, a profit-and-loss charge and a closing provision before comparing figures. Read the accounting policy alongside the roll-forward.
Source: ONGC Integrated Annual Report 2024–25 — standalone printed pp. 269, 271, 280–282, 304, 325 and 372–373 (PDF pp. 271, 273, 282–284, 306, 327 and 374–375).
⛏️ Case Study 2 — Coal India: exploration, development and impairment (FY2024–25)
Reporting basis: Coal India Limited consolidated financial statements, including subsidiaries, at 31 March 2025. All amounts in this case are ₹ crore.
- The group presents these E&E costs separately within non-current assets. Its policy explains that the intangible component is insignificant or indistinguishable from the overall expected tangible costs.
- Exploratory assets for blocks identified for sale to outside agencies are classified separately as intangible assets; note 3.4 reports ₹30.78 crore net at 31 March 2025. The presentation therefore cannot be reduced to “all exploration is tangible”.
- A denied clearance or discontinued project can trigger impairment assessment. The recognised loss depends on recoverable amount; a trigger alone does not establish a full write-off. Coal India's group note reports an ₹88.97 crore E&E impairment charge for FY25.
What this teaches: resource assessment, development sanction, impairment and classification are separate decisions. A reserve certificate alone does not replace the feasibility and commercial-viability assessment.
Source: Coal India Integrated Annual Report 2024–25 — consolidated policy 2.10–2.12, printed pp. 478–479, and notes 3.3–3.4, pp. 496–497 (PDF pp. 241 and 250). Issuer report delivery alternative.
🔩 Case Study 3 — Hindustan Zinc and Vedanta: keep the reporting entities separate (FY2024–25)
Hindustan Zinc standalone: note 5 reports exploration intangible assets under development of ₹73 crore at 31 March 2025. The movement is easy to follow: opening ₹109 crore + additions ₹121 crore − transfers ₹157 crore = closing ₹73 crore.
- Foreign currency: Vedanta's policy translates foreign-operation assets/liabilities at the closing rate, with translation differences in OCI; ordinary foreign-currency transaction differences follow the transaction rules and do not all go to OCI.
- Joint operations: Vedanta's oil-and-gas policy recognises its share of joint-operation assets, income and expenditure; where it is the operator, some liabilities are presented gross with a corresponding receivable from partners. This differs from equity accounting for a joint venture.
What this teaches: do not combine subsidiary, division and consolidated-group amounts as if they were one E&E balance. State the entity and measurement basis beside every number.
Source: Hindustan Zinc Integrated Annual Report FY2025 — standalone policy 3(I)(e)(v), printed p. 393, and note 5, p. 415 (PDF pp. 198 and 209). Source: Vedanta Integrated Report and Annual Accounts 2024–25 — consolidated note 6, p. 438 (PDF p. 222); accounting policies on E&E, foreign currency and joint operations, and standalone joint-operations policy, p. 564 (PDF p. 285).
✅ Key Takeaways — Ind AS 106
- Applies only during exploration & evaluation phase — ends when technical/commercial viability proven
- Entities may capitalize or expense E&E costs — policy must be applied consistently
- Read the actual recognition policy: costs may initially be capitalised pending the exploration result, while some survey or pre-rights costs are expensed
- E&E assets classified as tangible or intangible based on nature
- Impairment triggered by specific indicators (licence expiry, no future exploration, dry holes)
- CGU for E&E impairment test can be as large as an operating segment
- Assess impairment before reclassification when technical feasibility and commercial viability become demonstrable
8. Frequently Asked Questions
What is the difference between the Full Cost Method and Successful Efforts Method?
These are industry approaches to exploration accounting, rather than two universally interchangeable policies prescribed by Ind AS 106. A full-cost approach pools a broader set of exploration costs; a successful-efforts approach distinguishes costs associated with successful and unsuccessful exploration.
The timing matters: ONGC initially capitalises drilling and equipping exploratory/appraisal wells while the result is assessed, but expenses exploratory-area survey costs as incurred. It expenses well costs when determined to be dry or of no further use. “Only successful wells are ever capitalised” would misdescribe that policy.
Ind AS 106 paragraphs 6–9 require a consistent policy and relevant, reliable information. A policy change must also satisfy the improvement criteria in paragraphs 13–14 and the applicable Ind AS 8 requirements; it is not a free annual choice.
When does Ind AS 106 end and Ind AS 16 begin for a mining project?
E&E classification ends when technical feasibility and commercial viability of extracting the resource are demonstrable (paragraph 17). A feasibility study, reserve assessment, approvals, financing and a sanctioned development plan can inform that judgement; none is a universal standalone trigger.
Before reclassification, assess the E&E asset for impairment and recognise any loss. Transfer the resulting carrying amount to the appropriate development/PPE/intangible category under the relevant standard. Depreciation or amortisation starts when required by that standard, including the asset's availability for use, rather than automatically on a reserve certificate or transfer date.
Coal India's disclosed policy specifically transfers E&E to “Development” within capital work in progress when proved reserves are determined and mine/project development is sanctioned.
How does ONGC account for decommissioning costs of oil wells?
A removal or restoration obligation can arise during exploration as well as development or production. Ind AS 106 paragraph 11 refers such obligations to Ind AS 37; recognition depends on a present obligation, probable outflow and a reliable estimate, not solely on the start of production.
ONGC's standalone policy 3.10 records the present value of estimated decommissioning costs in the provision and related asset cost, with discount unwinding in finance costs and subsequent estimates accounted for under its disclosed policy.
For FY25, note 24.1 reports a company-wide closing decommissioning provision of ₹471,415.71 million (₹47,141.57 crore) and unwinding of ₹28,987.14 million (₹2,898.71 crore). The provision covers Oil and Gas Assets and wells in progress; it is not identified as an offshore-only balance. ONGC FY25 report, printed p. 325 (PDF p. 327).
Sources and reporting basis
Company examples checked against the FY2024–25 reports on 21 October 2026. Figures are historical disclosures for that year. Printed page numbers and PDF page numbers differ because some reports use two-page spreads.
- ICAI Ind AS 106, 2025–26 compendium: paragraphs 5–17 (scope, recognition, measurement and reclassification), 18–22 (impairment) and 23–25 (disclosure).
- ONGC FY25 annual report: standalone policies 3.6–3.10; notes 10.1, 24.1 and 48.1; standalone profit and loss statement. Report units: ₹ million; ₹ crore = ₹ million ÷ 10.
- Coal India FY25 annual report: consolidated policies 2.10–2.12 and notes 3.3–3.4. Units: ₹ crore. Alternative issuer-hosted delivery.
- Hindustan Zinc FY25 annual report: standalone policy 3(I)(e)(v) and note 5. Units: ₹ crore.
- Vedanta FY25 annual report: consolidated E&E, foreign-currency and joint-operation policies and note 6. Units: ₹ crore.