What are the research expenses and exploration?

The research and exploration expenses – Expenditures for research expenses and exploration are among the important expenses in the development of the company, and exploration expenses refer to the costs incurred by the company in determining the areas that may require the examination of certain areas, which include exploration wells and others to obtain precious metals such as oil and natural gas. As for research costs, they mean the costs incurred The company is looking for unique products, and these expenses differ in their concept, as explained previously, their objectives, their cost, their methods of treatment, and their components, and this is what the article will answer in a presentation for both types separately:

What are research expenses?

Research expenses – It is the cost incurred in researching new and unique products, a new manufacturing process, or improving products or processes.

Research expenditure goals

There are many goals that research expenditures achieve, and among these goals will be explained in detail:

• Gain better knowledge.
• Discover new or improved products, new or improved production methods, and new applications of materials in order to increase profits.
• Finding new uses for products.
• Improvement and development of business organization and planning
• Explore market potential and requirements.
• Improving existing products and processes in order to achieve more profits, taking into account maintaining the price and quality of these products at a reasonable price.
• Finding new ways to better serve customers in order to keep them
• Knowing the possibilities of expanding the current business or entering into other areas with the intention of increasing profits

Search processing costs

There are two types of research processing costs, and the following will be explained in detail:
Basic search costs
These are costs that are incurred on both existing products and operating methods and production techniques. The primary research costs should be treated as indirect production costs for the period during which they are incurred and should be included in product costs.

Applied Research Costs
These costs are categorized into two parts, and the following will be explained in detail:

• Section One: If the applied research costs are related to the improvement of existing products and production methods, they should be treated as indirect manufacturing costs for the period and added to the product cost.
• Section Two: If the costs of applied research are incurred to search for new products or production methods for the company, then these costs are amortized for the newly invented product or the adoption of a new production method, then not all such expenses should be added in the year in which these expenses were incurred but should represent part of it.

It should be noted that when applied research aims to improve the current product, innovate a new product, or develop a new technology, if it is found that the research process has failed to obtain the desired results, these applied research expenses are charged against the profit in calculating the cost of profit and loss for a period of one year or more, depending on the amount of expenses incurred.

What are the exploration expenses?

The costs incurred by companies to search for designated areas that may contain oil and gas reserves, including the costs of drilling exploratory wells and exploratory test wells of the stratified type, are incurred before the benefits that may be accrued as a result of these costs are obtained.

What do exploration expenses include?

Exploration expenses include many costs, and the following will be explained in detail:

• Applicable operating costs of the equipment.
• Applicable operating costs for support facilities.
• Applicable operating costs for mineral resources, including minerals, oils, natural gas, and other similar non-renewable resources.

After the company obtains exploration rights in specific areas by determining the technical feasibility and commercial feasibility of extracting mineral resources, the exploration process takes place.

IFRS 6 allows a company to develop an accounting policy for recognizing exploration and evaluation expenditures without complying with many of the policy requirements in IAS 8 regarding policies, changes in accounting estimates, and errors.

Exploration and evaluation cost components

After recognizing the exploration cost in accordance with IFRS 6, the components that form part of the exploration cost will be mentioned below, and the following will be explained in detail:

• Acquisition of exploration rights.
• Exploratory drilling cost.
• Trenching and sampling
• Study costs go towards topography and geology.
• The cost of activities related to the technical and commercial feasibility of extracting minerals

However, expenditures related to the development of mineral resources will not be recognized as exploration and appraisal costs but will be treated in accordance with IAS 38 Intangible Assets as development costs.

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