Appendix 5B Section 1.2: Staff Costs, Administration Costs and the AASB 6 Capitalisation Trap for ASX Junior Explorers

Most of the attention on AASB 6 goes to item 2.1(d), the decision to capitalise exploration and evaluation spending rather than expense it. That is the debate everyone expects. Two quieter line items on the same form carry a version of the same question and get almost none of the scrutiny: item 1.2(d), staff costs, and item 1.2(e), administration and corporate costs.

Both sit in Section 1, cash flows from operating activities, by default. Both are usually coded there without a second thought, because payroll and overheads feel like the "easy" categories compared to a capitalisation debate. That default is not always correct, and getting it wrong in either direction, over-capitalising or under-capitalising, is exactly the kind of error a reviewer can catch by comparing your 5B to your own payroll register.

What items 1.2(d) and 1.2(e) capture

The Appendix 5B groups operating payments under item 1.2 into five categories. Two of them are the subject of this article:

Item	What it captures	Common Xero source
1.2(d)	Staff costs: salaries, wages, on-costs for employees and contractors	Payroll journal, wages and superannuation GL accounts
1.2(e)	Administration and corporate costs: office overhead, insurance, professional fees, general management	Admin and overhead GL accounts, corporate cost centre

Both are operating cash flows, expensed as incurred, unless a specific test is met. That test is the same principle behind the 1.2(a)/2.1(d) exploration and evaluation split covered in our earlier article on AASB 6 E&E capitalisation: is the cost directly and specifically attributable to operational activities in a particular area of interest?

The AASB 6 test that can move them out of Section 1

AASB 6 allows administration and staff costs to be included in the cost of an exploration and evaluation asset, but only to the extent they relate directly to operational activities in the specific tenement or project the asset belongs to. Everything else stays an operating expense. The standard is explicit that general management salaries, directors' fees, company secretarial costs and share registry expenses are only indirectly related to exploration activity and should not be capitalised, no matter how the role is described on the organisation chart.

Cost	Default treatment	Where it can move if directly attributable to one area of interest
Field geologist or technician salary	Operating item 1.2(d)	Investing item 2.1(d), for time recorded against that tenement
Site-specific admin and overhead	Operating item 1.2(e)	Investing item 2.1(d), only the directly attributable portion
Directors' fees, company secretarial, share registry, general management	Operating item 1.2(d)/(e)	Stays operating. AASB 6 treats these as indirectly related, regardless of qualifications held

A two-part test before you code it

Apply both questions before a staff or admin cost gets capitalised:

1. Is the cost directly and specifically attributable to one area of interest? A geologist splitting time across three tenements is not directly attributable to any single one without an allocation basis. A geologist working exclusively on one tenement's drill program for the quarter is.
2. Is there a record that supports the attribution? A timesheet, activity log, or project allocation is what turns "we think most of their time was on-site" into a defensible position if the ASX or your auditor ever asks. Without a record, the safer and more common answer is to expense it.

If both answers are yes, the attributable portion moves to item 2.1(d). If either answer is no, it stays in 1.2(d) or 1.2(e). There is no partial credit for a plausible story with nothing behind it.

Setting Xero up to support the decision

The cleanest way to make this auditable rather than a year-end guess is to combine tracking categories with a documented reallocation journal, the same tracking category structure covered in our guide to Xero tracking categories for the Appendix 5B:

• Code payroll and admin costs to their normal operating accounts as they occur, tagged by tracking category to the relevant tenement or project where time is being logged.
• At period end, run the tracking category report and identify which staff and admin costs are attributable to a single area of interest for a defined period, supported by timesheets or activity logs.
• Post a reallocation journal moving only the directly attributable portion from the operating account to the capitalised E&E asset account, with the tracking category and the supporting record referenced in the journal narration.
• Keep the default position as expensed. Capitalisation is the exception that needs evidence, not the starting assumption.

For an explorer preparing the 5B as a solo CFO or FC with no independent second reviewer, which describes most of the ASX and NSX junior explorer register, this is one of the easier places to build a genuine audit trail. The test is simple, the record either exists or it does not, and a documented journal narration is enough to satisfy a reviewer who is checking whether the classification was a considered decision or a guess.

If you want a second set of eyes on how your staff and admin costs are currently classified before the September quarter closes, get in touch. We work with ASX and NSX junior explorers on exactly this kind of Xero-to-5B classification, across single and multi-entity structures.

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For the broader exploration and evaluation capitalisation boundary, see AASB 6 E&E Capitalisation in Xero: Which Exploration Costs Belong in Appendix 5B Section 2.1. For the tracking category structure this classification relies on, see Xero Tracking Categories for Appendix 5B: The Setup That Makes Automation Possible.