Ind AS 106 Exploration for and Evaluation of Mineral Resources: A Practitioner Guide for FY 2026-27
Ind AS 106 (Exploration for and Evaluation of Mineral Resources) is the Indian Accounting Standard that governs accounting for expenditures incurred during the exploration and evaluation phase of mineral resources.
The Ministry of Corporate Affairs (MCA) notified Ind AS 106 via the Companies (Indian Accounting Standards) Rules, 2015. It became effective voluntarily from 1 April 2015 and mandatory from 1 April 2016 (Phase I). Prior to Ind AS 106, Indian companies relied on limited guidance from the ICAI’s Guidance Note on Oil and Gas Producing Activities.
For FY 2026-27, Ind AS 106 remains highly relevant to oil and gas exploration companies such as ONGC or Cairn India. Successful efforts method remains common in India. The standard’s flexibility on accounting policy choice is critical given industry diversity.
Ind AS 106 at a Glance
Ind AS 106 sets out how companies account for costs incurred during the exploration and evaluation of mineral resources. The standard primarily serves listed companies and large unlisted entities in extractive industries such as oil, gas, mining, and metals.
| Field | Value |
|---|---|
| Standard Number | Ind AS 106 |
| Full Name | Exploration for and Evaluation of Mineral Resources |
| Issuing Body | ICAI (Accounting Standards Board) |
| Notified By | MCA, Companies (Indian Accounting Standards) Rules, 2015, dated 16 February 2015 |
| Effective Date | 1 April 2015 (voluntary), 1 April 2016 (mandatory Phase I) |
| Supersedes | Limited specific guidance under AS framework; Guidance Note on Accounting for Oil and Gas Producing Activities applied |
| Equivalent Standard | Guidance Note on Oil and Gas (limited) ↔ Ind AS 106 ↔ IFRS 6 |
| Applies To | Companies engaged in exploration for and evaluation of mineral resources (including oil, natural gas, and similar non-regenerative resources) that are required to follow Indian Accounting Standards. Ind AS 106 provides interim guidance pending more comprehensive standard for the extractive industries. The standard permits some flexibility in policy choice, recognising the diverse practices in this industry. |
What is Ind AS 106: Exploration for and Evaluation of Mineral Resources?
Ind AS 106 prescribes how an entity must account for costs incurred during the exploration and evaluation phase before technical feasibility or commercial viability is established. It allows companies to continue their pre-existing accounting policies if they meet certain conditions. This approach recognises industry diversity in practice.
The Institute of Chartered Accountants of India (ICAI) introduced this standard as part of India’s convergence with International Financial Reporting Standards (IFRS), specifically aligning with IFRS 6. Before its notification by the Ministry of Corporate Affairs (MCA), Indian companies followed only limited guidance through ICAI’s Guidance Note on Oil & Gas Producing Activities.
Practising statutory auditors, CFOs in mining or oil & gas sectors, finance teams preparing financial statements under Schedule III to the Companies Act, 2013, as well as CA Final students focusing on industry-specific standards all routinely use this standard.
Objective of Ind AS 106
- Specify the financial reporting for exploration and evaluation of mineral resources.
- Provide limited guidance during exploration and evaluation phase, permitting entity to continue accounting policies that were applied previously where they meet certain conditions.
- Require disclosures that identify and explain amounts in financial statements arising from exploration and evaluation.
These objectives ensure users receive information that reflects a true and fair view as mandated by Section 129 of the Companies Act, 2013. Entities must present reliable data about their exploration activities so stakeholders can assess performance transparently.
Who Must Apply Ind AS 106?
Entities covered, applicability table
Ind AS 106 applies to all companies conducting exploration or evaluation activities related to mineral resources who are required to comply with Indian Accounting Standards. This includes:
| Roadmap Phase | Applicability Criteria |
|---|---|
| Phase I | Listed entities with net worth ≥ Rs 500 crore as at March 31, 2014; unlisted with net worth ≥ Rs 500 crore; holding/subsidiary/JV/associate thereof |
| Phase II | All listed entities not covered above; unlisted entities with net worth ≥ Rs 250 crore but < Rs 500 crore; holding/subsidiary/JV/associate thereof |
| Voluntary | Any other company may opt-in subject to MCA notification |
Entities operating in oil & gas extraction (ONGC), mining (Vedanta), metals or similar industries fall within scope if they prepare financials under Ind AS.
Scope exclusions
Ind AS 106 does not apply to:
- Expenditures incurred before the exploration and evaluation phase begins
- Expenditures after technical feasibility/commercial viability are demonstrable
- Property, plant and equipment used in exploration activities
When the standard does not apply
Expenditures before exploration start are accounted under other relevant standards such as Ind AS 16 or Ind AS 38. Once technical feasibility/commercial viability is proven, typically when development begins, subsequent costs move out of scope into PPE or intangible assets per Ind AS 16/38 respectively.
Key Definitions under Ind AS 106
| Term | Definition |
|---|---|
| Exploration and evaluation expenditures | Costs incurred during search/evaluation before technical feasibility or commercial viability is proven. |
| Mineral resources | Minerals, oil, natural gas or similar non-regenerative resources. |
| Exploration and evaluation assets | Recognised assets representing capitalised E&E expenditures per chosen policy. |
| Technical feasibility and commercial viability | Point when extraction can be technically achieved profitably; triggers asset reclassification out of E&E phase. |
Recognition and Measurement under Ind AS 106
When to recognise
An entity recognises an asset for exploration and evaluation expenditures when those costs are incurred during the E&E phase, after acquiring rights but before proving technical feasibility or commercial viability (Para 8). The standard does not prescribe which expenditures must be capitalised versus expensed; instead it mandates that each entity select an appropriate policy consistent with prior practice.
If a company previously capitalised direct costs related to geophysical studies or exploratory drilling during E&E activities, and this policy meets reliability criteria, it may continue doing so under Ind AS 106 provided it applies this approach consistently across projects.
Initial measurement
Initial measurement occurs at cost per Para 8. Cost includes acquisition rights to explore specific areas; directly attributable expenses such as topographical/geological/geochemical/geophysical studies; exploratory drilling; trenching; sampling; evaluating technical feasibility/commercial viability.
**Initial Measurement Formula:**
Cost = Acquisition rights + Directly attributable E&E expenditure
*(including studies/drilling/sampling/etc.)*
Administrative overheads not directly linked to a particular area are generally expensed unless clearly attributable per entity policy.
Subsequent measurement
After initial recognition:
Entities may choose between:
Cost model: Carry assets at cost less impairment.
Revaluation model: Allowed only if fair value can be reliably measured, rarely used due to lack of active markets.
Most Indian companies adopt cost model due to practical constraints.
Impairment testing must occur at specific trigger points defined in Paras 18-22:
- Expiry/non-renewal risk over rights
- No further budgeted/planned expenditure
- Decision made not to develop due to lack of commercial reserves
- Data indicates unrecoverable carrying amount
When technical feasibility/commercial viability become demonstrable, usually when board approval is obtained based on reserve estimates, the asset moves out from E&E classification into PPE (Ind AS 16) or intangibles (Ind AS 38) after impairment testing at reclassification date.
Continuation of Pre-existing Accounting Policy with Triggers for Impairment
Unlike most standards under Indian GAAP or IFRS convergence regimes, Ind AS 106 permits continuation of an entity’s historical accounting policy, such as successful efforts method or full cost method, for E&E expenditure recognition if:
- The policy was applied prior,
- It is appropriate,
- It is applied consistently across comparable circumstances,
- The approach meets reliability requirements per Para 7.
However:
- Impairment triggers must be monitored rigorously per Para 20,
- On reaching technical feasibility/commercial viability threshold, the “development” inflection point, the asset must be tested for impairment then reclassified out from E&E assets,
- Failure to monitor these triggers risks material misstatement, a frequent audit finding in our experience advising mining sector clients.
This pragmatic approach acknowledges global diversity in extractive industry practice while ensuring minimum comparability through mandatory disclosures around policy choice/impairment testing/reclassification events.
Worked Examples on Ind AS 106
Example 1: Exploration and evaluation expenditure, oil block
Maharashtra Oil Ltd acquires offshore oil block rights for Rs 100 crore on April 1st 2024. During FY 2024-25/26:
- Geophysical studies, Rs 30 crore
- Exploratory drilling, Rs 80 crore
Technical feasibility/commercial viability are not yet demonstrable by March 31st 2026.
Computation Table
| Item | Amount (Rs crore) | Notes |
|---|---|---|
| Acquisition cost | ₹100 | Initial right |
| Geophysical studies | ₹30 | Directly attributable |
| Exploratory drilling | ₹80 | Directly attributable |
| Total E&E Asset | ₹210 | As at March 31st 2026 |
Journal Entry
Initial acquisition:
Dr Exploration & Evaluation Assets ₹100 crore
Cr Bank ₹100 crore
Subsequent expenditures:
Dr Exploration & Evaluation Assets ₹110 crore
Cr Bank/Various ₹110 crore
No depreciation/amortisation charged during E&E phase under chosen policy.
Annual review performed, no impairment triggers met.
Asset remains classified as ‘Exploration & Evaluation Assets’ within non-current assets section until commercial reserves demonstrated.
Example 2: Impairment trigger, decision to abandon
Krishna Mining Ltd capitalised Rs 50 crore exploring a copper deposit over FY24-25.
Evaluation results indicate no commercially viable reserves.
On September 30th 2025 Board decides project abandonment, a Para 20 impairment trigger event.
Computation Table
| Item | Amount (Rs crore) | Notes |
|---|---|---|
| Capitalised E&E Expenditure | ₹50 | Cumulative till abandonment |
| Recoverable amount | Nil | No future cash flows expected |
| Impairment loss recognised | ₹50 | Entire carrying amount impaired |
Journal Entry
Impairment recognition:
Dr Impairment Loss, P&L ₹50 crore
Cr Provision for Impairment ₹50 crore
On formal derecognition:
Dr Provision for Impairment ₹50 crore
Cr Exploration & Evaluation Assets ₹50 crore
Any recoveries/disposals handled separately per Ind AS 16 if equipment exists.
Disclosure Requirements under Ind AS 106
Schedule III to the Companies Act, 2013, and Ind AS 106 both require clear disclosures for exploration and evaluation activities. Transparent reporting enables users to assess the impact of policy choices, impairment, and reclassification events on financial statements. Disclosures must be sufficiently granular to allow comparability across companies in the extractive sector.
| Item | Requirement | Para Reference |
|---|---|---|
| Accounting policies for exploration and evaluation expenditures | Including recognition criteria and policy choices | Para 24(a) |
| Amounts of assets, liabilities, income, expense, operating and investing cash flows | Arising from exploration for and evaluation of mineral resources | Para 24(b) |
| Reconciliation of exploration and evaluation assets | Carrying amount changes over the period | Implicit |
| Impairment indicators and testing | When impairment is recognised | Cross-ref Ind AS 36 |
| Reclassifications | When assets move out of exploration phase | Implicit |
Auditors must ensure disclosures under Ind AS 106 are complete and consistent with management’s stated accounting policy, as required by SA 700.
Common Mistakes & Industry-Specific Considerations
Common errors auditors flag
- Inconsistent accounting policy application across exploration projects
- Failing to test for impairment when triggers in Para 20 are met
- Continuing to classify assets as exploration and evaluation when technical feasibility and commercial viability are demonstrable (must reclassify)
- Capitalising expenditures incurred before exploration and evaluation phase begins (administrative, exploration general expenses)
- Inadequate disclosure of accounting policy choice (full cost vs successful efforts methods or hybrid)
- Not testing for impairment at reclassification to PPE or intangibles
Industry application notes
Oil and gas companies such as ONGC or Cairn India typically apply the successful efforts method. Only costs relating to areas where commercial reserves are established are capitalised. Impairment triggers require significant judgement given the scale of investments.
Mining sector entities like Vedanta or Hindustan Zinc operate capital-intensive projects. Exploration phases can span multiple years. Quarterly monitoring of impairment indicators is common practice, with strict controls on reclassification when development commences.
Junior exploration companies often capitalise most expenditures due to materiality. However, high impairment risk exists if projects fail. Disclosure requirements under Ind AS 106 become even more significant given their balance sheet impact.
Ind AS 106 vs Guidance Note on Oil and Gas vs IFRS: Key Differences
The table below highlights major differences in accounting for exploration and evaluation activities under the ICAI Guidance Note on Oil & Gas Producing Activities, Ind AS 106, and IFRS 6:
| Aspect | AS (Guidance Note) | Ind AS | IFRS |
|---|---|---|---|
| Scope | Limited Guidance Note | Specific standard for E&E phase | Same as Ind AS |
| Policy choice | Limited | Permitted to continue prior policy | Same |
| Recognition criteria | Per Guidance Note | Cost basis with policy flexibility | Same |
| Impairment triggers | General per AS 28 | Specific Para 20 triggers | Same |
| Reclassification | Per Guidance Note | When commercial viability demonstrated | Same |
India’s approach under Ind AS 106 closely tracks IFRS 6 with no significant carve-outs for this topic. The flexibility in policy choice is retained but bounded by explicit disclosure and impairment requirements. Entities transitioning from the Guidance Note must document their chosen approach.
Latest Amendments to Ind AS 106 (FY 2026-27)
No amendments have been notified to Ind AS 106 for FY 2026-27 as of 2026-05-02. The standard continues to apply in its existing form.
Related Standards You Should Know
- [Ind AS 16](/ind-as-16-property-plant-and-equipment/), PPE used in exploration; reclassification destination after E&E phase.
- [Ind AS 38](/ind-as-38-intangible-assets/), Intangible exploration rights; reclassification destination.
- [Ind AS 36](/ind-as-36-impairment-of-assets/), Impairment testing at triggers and at reclassification.
- [Ind AS 37](/ind-as-37-provisions-contingent-liabilities/), Decommissioning provisions associated with exploration sites.
- [Ind AS 109](/ind-as-109-financial-instruments/), Forward contracts and derivatives in commodity hedging.
Need Help with Ind AS 106 Compliance?
Patron Accounting LLP supports Indian oil, gas, mining, and metals companies with end-to-end compliance under Ind AS 106 Exploration for and Evaluation of Mineral Resources. Our team brings deep experience advising on complex accounting policies, Schedule III presentation, audit readiness, and regulator-facing disclosures.
Our services include:
- Statutory Audit
- Ind AS Advisory
- Financial Reporting & Schedule III
- Disclosure Review
Schedule a 30-minute consultation with our Ind AS team, Pune · Mumbai · Delhi · Gurugram.
Frequently Asked Questions (FAQs)
Any company engaged in the exploration or evaluation of mineral resources, including oil, natural gas, metals, must apply Ind AS 106 if it prepares financial statements under Indian Accounting Standards as notified by the Ministry of Corporate Affairs.
The exploration and evaluation phase covers all activities after an entity obtains legal rights to explore but before technical feasibility or commercial viability is demonstrated. Expenditures during this period may be capitalised or expensed based on entity policy.
Unlike the limited guidance provided by the ICAI’s Guidance Note on Oil & Gas Producing Activities, Ind AS 106 provides a formal standard aligned with IFRS 6. It allows continuation of pre-existing policies but imposes specific disclosure and impairment requirements.
Yes. An entity may continue using its previous accounting policy, successful efforts or full cost, if it meets reliability criteria per Para 7. The chosen policy must be applied consistently across comparable circumstances.
Frequent errors include inconsistent application of accounting policies across projects, failing to test for impairment at required triggers (Para 20), inadequate disclosure of policy choice, capitalising pre-exploration costs, or not reclassifying assets once commercial viability is established.
Entities must test for impairment whenever specified triggers occur, such as expiry of rights, lack of budgeted expenditure, decision not to develop an area further, or before reclassifying assets out of E&E phase (Paras 18-22).
Once technical feasibility or commercial viability is demonstrable, typically board approval based on reserve estimates, the asset leaves E&E classification. It is transferred into property plant equipment (Ind AS 16) or intangible assets (Ind AS 38) after mandatory impairment testing.
Yes. Companies must disclose accounting policies used for E&E expenditures; amounts recognised as assets/liabilities/income/expense; reconciliation movements; details about impairment testing; and any asset reclassifications, all aligned with Schedule III presentation norms.
No significant differences exist between IFRS 6 and Ind AS 106 regarding scope or recognition principles. Both permit continuation of historical policies subject to disclosure; both require regular review for impairment triggers; both mandate detailed reporting around asset movements.
Junior explorers often capitalise most direct E&E costs due to materiality but face high risk of subsequent impairment if projects fail. They must monitor trigger events closely and provide detailed disclosures about capitalised amounts and write-offs each period.
About This Article
Reviewed by CA & CS Team · Patron Accounting LLP
Technical reviewer: CA Sundram Gupta, FCA
Last reviewed: 2026-05-02
Sources: ICAI Compendium of Accounting Standards · MCA Notification (Companies (Indian Accounting Standards) Rules, 2015, dated 16 February 2015) · IFRS Foundation