7/27/2019 Accounting Update IFRS Stripping Costs - IFRS

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In October 2011, the International Financial Reporting

Standards Interpretations Committee (IFRIC) published

IFRIC 20: Stripping Costs in the Production Phase

o a Surace Mine (IFRIC 20). IFRIC 20 is applicable

or nancial years commencing on or ater 1 January2013 with early adoption permitted. It is important to

note that this interpretation deals only with stripping

during the production phase o a mine and not the

development phase.

HIGHLIGHTS OF IFRIC 20

There has been some divergence in practice on how to treat

stripping costs in the production phase o a mine. Stripping involves

the process o removing mine waste materials (overburden) to gain

access to mineral ore deposits. The divergence arises due to the

complexity o deciding when stripping is perormed purely to reachore at lower levels or when the stripping produces material with

suciently high grades o ore that it should be treated as inventory.

The ratio o ore to waste can range rom uneconomic low grade to

protable high grade.

There are two key benets to an entity rom stripping which are:

Usable ore that can lead to inventory; and

Improved access to material that will be mined in uture periods.

IFRIC 20 claries when production stripping costs should lead to

the recognition o an asset and how that asset should be initially

and subsequently measured. The consensus reached by the

interpretation is too the extent that:

the benet rom the stripping activity is realised in the orm o

inventory, the entity shall account or the costs o that stripping

activity in accordance with the principles o International

Accounting Standard 2: Inventories (IAS 2); and

the benet has improved access to ore, the entity shall

recognise the costs o that stripping activity as

a non-current asset (stripping activity asset), i the criteria

below are met.

Accounting Update 7IFRIC 20 - Stripping costs in the production phase o a surace mine

7/27/2019 Accounting Update IFRS Stripping Costs - IFRS

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An entity shall recognise a stripping activity

asset i, and only i, all o the ollowing are

met.

a) I it is probable that the uture economic

benet (improved access to the ore

body) associated with the stripping

activity will fow to the entity.

b) I the entity can identiy the component

o the ore body or which access has

been improved.

c) I the costs relating to the stripping

activity associated with that component

can be measured reliably.

The stripping activity asset is accounted

or as an addition to the existing asset andthereore takes on the tangible/intangible

asset classication o that existing asset.

The stripping activity asset is measured

at cost plus an allocation o directly

attributable overhead costs.

Subsequent to initial recognition, the

stripping activity asset will normally be

carried at cost or its cost less depreciation

or amortisation and less impairment

losses. The stripping activity asset must be

depreciated or amortised on a systematic

basis, over the expected useul lie o theidentied component o the ore body that

becomes more accessible as a result o the

stripping activity.

TRANSITION

On transition an entity shall:

Not reinstate previously expensed

stripping costs incurred prior tothe beginning o the earliest period

presented (i.e. start o comparative

period);

Reclassiy any previous stripping asset

in the balance sheet as a part o an

existing asset to which the stripping

activity related (i.e. ollowing accounting

rules in the interpretation or any pre-

existing stripping assets); and

De-recognise any previously recognised

stripping assets where there is nocomponent o the ore body to which the

asset relates (de-recognised in opening

retained earnings at the beginning o the

earliest period presented).

ACCOUNTING PUBLICATION

These accounting updates have

been prepared by PKF International

Ltd (PKFI) as a resource to help

PKF member rms understand key

accounting developments and how

they may aect their clients.

The Accounting Update is a periodic

publication which incorporates key

accounting developments which have

arisen within that period.

MEMBER FIRMS INVOLVEMENT

It is the aim o PKFI to involve member

rms in producing these updates.We encourage member rms to

use this tool to share best practice

with other member rms on

accounting conversion methodology,

templates or brochures and new

service lines that have been successul

and can be replicated elsewhere.

www.pkf.comIMPORTANT DISCLAIMER: This publication has been distributed on the express terms and understanding that the aut hors are notresponsible for the results of any actions which are undertaken on the basis of the information which is contained within this publication,

nor for any error in, or omission from, this publication.

The publishers and the authors expressly disclaim all and any liability and responsibility to any person, entity or corporation who acts or

fails to act as a consequence of any reliance upon the whole or any part of t he contents of this publication.

Accordingly no person, entity or corporation should act or rely upon any matter or information as contained or implied within this

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PKF International is a network of legally independent member firm s administered by PKF International Limited (PKFI). Neither PKFI nor

the member firms of the network generally accept any responsibility or liability for the actions or inactions on the part of any individual

member firm or firms.

This specic Accounting Update has been contributed by PKF Australia. Should you have any questions

regarding the content o this Accounting Update please contact:

12-1769i May 2012

Abdul Islam - Senior Technical Manager

Email: abdul.islam@pkf.com Tel: +44 (0) 207 065 0418