IASB Issues New Interpretation on Waste Removal Costs in Surface Mining
The IASB has issued IFRIC Interpretation 20 Stripping Costs in the Production Phase of a Surface Mine (IFRIC 20). The Interpretation clarifies the requirements for accounting for stripping costs associated with waste removal in surface mining, including when production stripping costs should be recognised as an asset, how the asset is initially recognised, and subsequent measurement.
Key requirements of IFRIC 20 include:
- Stripping activity costs which provide improved access to ore are recognised as a non-current 'stripping activity asset' when certain criteria are met. This means an entity cannot immediately expense stripping costs, nor adopt a standard costing approach (sometimes referred to as a 'stripping ratio' approach) based on total expected costs to be incurred over the life of the mine
- Normal ongoing operational stripping activities are accounted for in accordance with IAS 2 Inventories
- When the costs of the stripping activity asset and the inventory produced are not separately identifiable, production stripping costs are allocated between the inventory produced and the stripping activity asset by using an allocation basis that is based on a relevant production measure
- The stripping activity asset is accounted for as an addition to, or as an enhancement of, an existing asset and classified as tangible or intangible according to the nature of the existing asset of which it forms part
- The stripping activity asset is initially measured at cost and subsequently carried at cost or its revalued amount less depreciation or amortisation and impairment losses
- A stripping activity asset is 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 is used unless another method is more appropriate.
Entities will need to consider carefully the identification of the ore body or component of ore body to which capitalised costs relate as this will determine how the asset is depreciated.
IFRIC 20 is effective for annual periods beginning on or after 1 January 2013, with early application permitted.
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