Exposure Draft
Stripping Costs in the Production
Phase of a Surface Mine
(Amendments to Ind AS 16)
(Last date for Comments: September 15, 2014)
Issued by
Accounting Standards Board
The Institute of Chartered Accountants of India
Exposure Draft
Stripping Costs in the Production
Phase of a Surface Mine
(Amendments to Ind AS 16)
Following is the Exposure Draft of Stripping Costs in the Production Phase of a Surface Mine
(Amendments to Ind AS 16) issued by the Accounting Standards Board of The Institute of
Chartered Accountants of India, for comments. The Board invites comments on any specific
aspect of the Exposure Draft. Comments are most helpful if they indicate the specific paragraph
or group of paragraphs to which they relate, contain a clear rationale and, where applicable,
provide a suggestion for alternative wording.
Comments should be submitted in writing to the Secretary, Accounting Standards Board, The
Institute of Chartered Accountants of India, ICAI Bhawan, Post Box No. 7100, Indraprastha
Marg, New Delhi 110 002, so as to be received not later than September 15, 2014. Comments
can also be sent by email to commentsasb@icai.in
(The Exposure Draft of the Indian Accounting Standard includes paragraphs set in bold type and
plain type, which have equal authority. Paragraphs in bold type indicate the main principles.
(This Exposure Draft of the amendments Indian Accounting Standard should be read in the
context of its objective and the Preface to the Statements of Accounting Standards1)
Question for respondents
Paragraphs 2 and 14 refer to `units of production' method as the appropriate method for
amortisation of Striping Activity Asset. Do you agree? Why or why not?
1
Attention is specifically drawn to paragraph 4.3 of the Preface, according to which accounting standards are
intended to apply only to items which are material
Amendments to Ind AS 16 Property, Plant and Equipment
Appendix B, Stripping Costs in Production Phase of Surface Mine has been added. Appendix B, References
to matters contained in other Indian Accounting Standards has been changed to Appendix C.
This Appendix is an integral part of Indian Accounting Standard (Ind AS) 16
Appendix B
Stripping Costs in the Production Phase of a Surface Mine
Background
1. In surface mining operations, entities may find it necessary to remove mine waste
materials (`overburden') to gain access to mineral ore deposits. This waste removal
activity is known as `stripping'.
2. During the development phase of the mine (before production begins), stripping costs are
usually capitalised as part of the depreciable cost of building, developing and
constructing the mine. Those capitalised costs are depreciated or amortised on a
systematic basis, usually by using the units of production method, once production
begins.
3. A mining entity may continue to remove overburden and to incur stripping costs during
the production phase of the mine.
4. The material removed when stripping in the production phase will not necessarily be a
total waste; often it will be a combination of ore and waste. The ratio of ore to waste can
range from uneconomic low grade to profitable high grade. Removal of material with a
low ratio of ore to waste may produce some usable material, which can be used to
produce inventory. This removal might also provide access to deeper levels of material
that have a higher ratio of ore to waste. There can therefore be two benefits accruing to
the entity from the stripping activity: usable ore that can be used to produce inventory
and improved access to further quantities of material that will be mined in future periods.
5. This Appendix considers when and how to account separately for these two benefits
arising from the stripping activity, as well as how to measure these benefits both initially
and subsequently.
Scope
6. This Appendix applies to waste removal costs that are incurred in surface mining activity
during the production phase of the mine (`production stripping costs').
Issues
7. This Interpretation addresses the following issues:
(a) recognition of production stripping costs as an asset;
(b) initial measurement of the stripping activity asset; and
(c) subsequent measurement of the stripping activity asset.
Principles
Recognition of production stripping costs as an asset
8. To the extent that the benefit from the stripping activity is realised in the form of
inventory produced, the entity shall account for the costs of that stripping overburden
removal activity in accordance with the principles of Ind AS 2 Inventories. To the extent
the benefit is improved access to ore, the entity shall recognise these costs as a non-
current asset, say, Stripping Activity Asset, if the criteria in paragraph 9 below are met.
9. An entity shall recognise a stripping activity asset if, and only if, all of the following are
met:
(a) it is probable that the future economic benefit (improved access to the ore body)
associated with the stripping activity will flow to the entity;
(b) the entity can identify the component of the ore body for which access has been
improved; and
(c) the costs relating to the stripping activity associated with that component can be
measured reliably.
10. The stripping activity asset shall be accounted for as an addition to, or as an enhancement
of, an existing asset. In other words, the stripping activity asset will be accounted for as
part of an existing asset.
11. The stripping activity asset's classification as a tangible or intangible asset is the same as
the existing asset. In other words, the nature of this existing asset will determine whether
the entity shall classify the stripping activity asset as tangible or intangible.
Initial measurement of the stripping activity asset
12. The entity shall initially measure the stripping activity asset at cost, this being the
accumulation of costs directly incurred to perform the stripping activity that improves
access to the identified component of ore, plus an allocation of directly attributable
overhead costs. Examples of the types of costs that would be included as directly
attributable overhead costs include an allocation of salary costs of the mine supervisor
overseeing that component of the mine, and the rental costs of any equipment that was
hired specifically to perform the stripping activity. Some incidental operations may take
place at the same time as the production stripping activity, but which are not necessary
for the production stripping activity to continue as planned. The costs associated with
these incidental operations shall not be included in the cost of the stripping activity asset.
An example of such type of incidental operations would be building an access road in the
area in which the stripping campaign is taking place.
13. When the costs of the stripping activity asset and the inventory produced are not
separately identifiable, the entity shall allocate the production stripping costs between the
inventory produced and the stripping activity asset by using an allocation basis that is
based on a relevant production measure. This production measure shall be calculated for
the identified component of the ore body, and shall be used as a benchmark to identify
the extent to which the additional activity of creating a future benefit has taken place.
Examples of such measures include:
(a) cost of inventory produced compared with expected cost;
(b) volume of waste extracted compared with expected volume, for a given volume of
ore production; and
(c) mineral content of the ore extracted compared with expected mineral content to be
extracted, for a given quantity of ore produced.
13A The production measure shall not be calculated using a basis that is based on sales values.
A basis that is based on sales values, in the context of stripping costs, is inappropriate
because it is not closely linked to the activity taking place. Furthermore, if the current
sales price of the relevant material is used in determining the allocation basis, the same
current sales price will be applied to the volume of the mineral in both the extracted ore
and the identified component. Hence, the relevant variable will be the volume of mineral
in both the extracted ore and the identified component, i.e., the current sales price will not
change the allocation basis. Applying a future sales price basis involves practical
difficulties. Identifying a future sales price for ore that will be mined in the future can be
difficult, given the volatility of market prices for many minerals. Further complexities
may arise when more than one mineral is present (whether by-products or joint products)
when the ore is extracted.
Subsequent measurement of the stripping activity asset
14. After initial recognition, the stripping activity asset shall be carried at either its cost or its
revalued amount less depreciation or amortisation and less impairment losses, in the same
way as the existing asset of which it is a part.
15. The stripping activity asset shall be depreciated or amortised on a systematic basis, over
the expected useful life of the identified component of the ore body that becomes more
accessible as a result of the stripping activity. The units of production method shall be
applied unless another method is more appropriate.
16. The expected useful life of the identified component of the ore body that is used to
depreciate or amortise the stripping activity asset will differ from the expected useful life
that is used to depreciate or amortise the mine itself and the related life-of-mine assets.
The exception to this are those limited circumstances when the stripping activity provides
improved access to the whole of the remaining ore body. For example, this might occur
towards the end of a mine's useful life when the identified component represents the final
part of the ore body to be extracted.
Appendix 1 is amended. New text is underlined and deleted text is struck through.
Appendix 1
Note: This Appendix is not a part of this Indian Accounting Standard. The purpose of this Appendix is
only to bring out the differences, if any, between Indian Accounting Standard (Ind AS) 16 and the
corresponding International Accounting Standard (IAS) 16, Property, Plant and Equipment, IFRIC 1,
Changes in Existing Decommissioning, Restoration and Similar Liabilities, and IFRIC 20, Stripping
Costs in the Production Phase of a Surface Mine.
.
Comparison with IAS 16, Property, Plant and Equipment, and IFRIC 1,
Changes in Existing Decommissioning, Restoration and Similar Liabilities and
IFRIC 20, Stripping Costs in the Production Phase of a Surface Mine
1. The transitional provisions given in IAS 16, and IFRIC 1 and IFRIC 20 have not been
given in Ind AS 16, since all transitional provisions related to Ind ASs, wherever
considered appropriate have been included in Ind AS 101, First-time Adoption of Indian
Accounting Standards corresponding to IFRS 1, First-time Adoption of International
Financial Reporting Standards.
2. Different terminology is used in this standard, e.g., the term `balance sheet' is used
instead of `Statement of financial position', and `Statement of profit and loss' is used
instead of `Statement of comprehensive income'.
3. Paragraph 28 has been deleted since Ind AS 20, Accounting for Government Grants and
Disclosure of Government Assistance does not permit the option of reducing the carrying
amount of an item of property, plant and equipment by the amount of government grant
received in respect of such an item, which is permitted in IAS 20. However, to maintain
consistency with paragraph numbers of IAS 16, this paragraph number is retained in Ind
AS 16.
4 Paragraph number 64 appears as `Deleted in IAS 16. In order to maintain consistency
with paragraph numbers of IAS 16, the paragraph number is retained in Ind AS 16.
5 Paragraphs 5 of Ind AS 16 and IE 7 of Appendix A of Ind AS 16 have been modified,
since Ind AS 40, Investment Property, prohibits the use of fair value model.
6. Paragraph 12 has been modified and paragraph 13A has been added to provide guidance
with regard to the requirements contained in the paragraphs 12 and 13.
Consequential Amendments to Other Ind ASs
Ind AS 101: First-time Adoption of Indian Accounting
Standards
Appendix D
After paragraph D26, the following shall be inserted:
Stripping Costs incurred in the production phase of a surface mine
D32 As at the beginning of the earliest period presented, any previously recognised
asset balance that resulted from stripping activity undertaken during the production phase
(`predecessor stripping asset') shall be reclassified as a part of an existing asset to which
the stripping activity related, to the extent that there remains an identifiable component of
the ore body with which the predecessor stripping asset can be associated. Such balances
shall be depreciated or amortised over the remaining expected useful life of the identified
component of the ore body to which each predecessor stripping asset balance relates.If
there is no identifiable component of the ore body to which that predecessor stripping
asset relates, it shall be recognised in opening retained earnings at the transition date.
Ind AS 1, Presentation of Financial Statements Appendix A
References to matters contained in other Indian Accounting
Standards
....
5. Appendix B, Stripping Costs in the Production Phase of a Surface Mine in Ind AS 16, Property,
Plant and Equipment
Ind AS 2: Inventories
Appendix A
References to matters contained in other Indian Accounting
Standards
....
2. Appendix B, Stripping Costs in the Production Phase of a Surface Mine in Ind AS 16, Property,
Plant and Equipment
Ind AS 38: Intangible Assets
Appendix B
References to matters contained in other Indian Accounting
Standards
....
4. Appendix B, Stripping Costs in the Production Phase of a Surface Mine in Ind AS 16, Property, Plant
and Equipment
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