KUIS

1. Componentisation—Pit by pit or mining complex basis

Entity A has a producing iron ore mining complex. In its mine plan it has identified 12 pits from
which the ore is planned to be extracted, some in the current period and others in later phases.
For the purpose of accounting the stripping costs, Entity A has identified components of ore
body for the mine as a whole rather than on a pit by pit basis.
Can Entity A do this?

2. Capitalisation of stripping costs

Entity B operates a producing coal mine. It has incurred costs during the year which have
resulted in both access to a certain amount of ore in the current period and also improved
access to other parts of the mine for future extraction.
In the past Entity B has been expensing stripping costs in the period in which they were
incurred. Can Entity B adopt a policy to continue to expense its stripping costs in the period in
which they are incurred?

3. Capitalisation of stripping costs

Entity C has incurred C30 million towards stripping activities which they believe has benefitted
the company by providing access to inventory as well as improving access to various portions of
the ore. The company has not precisely allocated the costs to identified components of the
mine. However, the company intends to capitalise these stripping costs by allocating them to
the whole mine rather than any component.
Can Entity C do this?

4. Reconditioning of equipment
Entity Y operates a major mine. Management estimates that reconditioning of the equipment is
required every 30 months. The costs of reconditioning are approximately C500,000; C300,000
for parts and equipment and C200,000 for labour to be supplied by employees of Entity Y.
Management proposed to accrue the cost of the reconditioning over the 30 months of
operations between reconditioning and create a provision for the expenditure. Is
management’s proposal acceptable?

5. Might a change in government be an indicator of impairment?

A mining company has a mining licence in a developing country. The company’s investment in
the mining assets is substantial. There is a coup in the country and the democratically elected
government is replaced by a military regime who have indicated they will introduce a new
mineral tax and review the terms of all existing mining licenses.
Does the change in government constitute an indicator of impairment?

GOOD LUCK