Final answer:
Exploration and Evaluation Assets (EEA) are assets that a company acquires to explore and evaluate the potential for future economic benefits such as discovering mineral resources. The classification of EEA depends on the stage of exploration or evaluation.
Step-by-step explanation:
Exploration and Evaluation Assets (EEA) are assets that a company acquires to explore and evaluate the potential for future economic benefits such as discovering mineral resources. The classification of EEA depends on the stage of exploration or evaluation. In the earlier stages, these assets are classified as exploratory, while in the later stages, they are classified as evaluation or development assets.
For example, a mining company acquiring a piece of land with the intention of exploring it for mineral resources would classify it as an exploratory EEA. Once the company begins evaluating the feasibility of extracting those resources, the land would be reclassified as an evaluation EEA.
This classification is crucial for accounting purposes as it determines how the company records and reports these assets on their financial statements.