Shedding light on six key sector related accounting issues
Impairments under IFRS 6
IFRS 6 specifies the financial reporting for the exploration for and evaluation of mineral resources. It applies specifically to the treatment of expenditures incurred by entities in the exploration phase. It details specific examples of impairment indicators that companies must consider on an annual basis for their capitalised project costs.
Impairments under IAS 36
IAS 36 prescribes the procedures that an entity applies to ensure that its assets are carried at no more than their recoverable amount. The Standard provides examples of internal and external impairment indicators, however there are various methods available to assess whether an impairment arises, all of which include significant judgement and estimation uncertainty.
Depletion under the unit of production method
Depletion refers to the process of amortising assets, such as mining properties or developed oil and gas properties, on the basis of actual extraction volumes during the reporting period. The unit of production method is the widely accepted approach for recording depletion expense.
Accounting for asset retirement, decommissioning, and mine rehabilitation
Accounting for asset retirement, decommissioning and mine rehabilitation provisions differ by jurisdiction, life cycle, extraction process used and type of resource. Companies are required to apply judgement and estimation in relation to total anticipated costs, discount rates and inflation rates as well as reassess on an annual basis when new information comes to light.
Accounting for purchase price allocation following an acquisition
A Purchase Price Allocation (PPA) is governed by IFRS 3. If the acquisition meets the definition of a business, then the PPA process is used to allocate the cost of the acquisition to the fair value of individual assets and liabilities acquired, with the difference arising as goodwill or gain on bargain purchase.
Transitioning categories from exploration to mine under construction through to production
Moving between categories from exploration, to mine under construction, to production in the natural resources sector is complex. Management judgement and estimation are crucial.
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