The Differences Between the Treatment That Would Be Most Consistent

question 7

Multiple Choice

The differences between the treatment that would be most consistent with the AASB Framework and the method required by AASB 6 for the treatment of pre-production costs include:

• A) The AASB Framework requires future benefits to be probable so virtually all exploration and evaluation costs would be written off. Under AASB 6, these costs may be reinstated if economically viable reserves are discovered.
• B) AASB 6 requires future benefits to be probable so virtually all exploration and evaluation costs are to be written off. Under the AASB Framework these costs may be reinstated if economically viable reserves are discovered.
• C) The AASB Framework requires future benefits to be probable so virtually all exploration and evaluation costs would initially be written off and only reinstated when economically viable reserves had been discovered. AASB 6 allows the capitalisation of these costs provided active and significant operations in the area are continuing.
• D) AASB 6 requires future benefits to be likely and permits the capitalisation of exploration and evaluation costs to the extent that this requirement is met and there are continuing operations in the area of interest. The AASB Framework would require the future benefit to be probable and so the two sources of regulations would result in very similar outcomes in terms of asset and expense recognition.

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Definitions:

Available-For-Sale Securities

Financial assets that are intended to be sold before their maturity date but are not actively traded or held to maturity, subject to changes in fair value recorded in other comprehensive income.

Trading Securities

Financial instruments like stocks or bonds that are bought and sold for the purpose of generating profits on short-term fluctuations in price.

Trading Gains

Profits realized from buying and selling financial instruments within a short period, aiming to benefit from market price movements.

Minority Passive Investments

Investments in which the investor holds a non-controlling stake and does not actively participate in management.