IFRIC 20 was adopted by the European Commission and amended by the following regulations:
(EU) 2023/1803 – consolidation of previous amendments; the amendment does not change the interpretation in substance (references to previous EU regulations have been removed)
(EU) 2019/2075 – Amendments to References to the Conceptual Framework in IFRS Standards
References
Conceptual Framework for Financial Reporting 1 | |
IAS 1 | Presentation of Financial Statements |
IAS 2 | Inventories |
IAS 16 | Property, Plant and Equipment |
IAS 38 | Intangible Assets |
The reference is to the Conceptual Framework for Financial Reporting, issued in 2010 and in effect when the Interpretation was developed.
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 100 per cent 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.
5This Interpretation 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 Interpretation 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:
recognition of production stripping costs as an asset;
initial measurement of the stripping activity asset; and
subsequent measurement of the stripping activity asset.
Consensus
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 activity in accordance with the principles of IAS 2 Inventories. To the extent the benefit is improved access to ore, the entity shall recognise these costs as a non-current asset, if the criteria in paragraph 9 below are met. This Interpretation refers to the non-current asset as the ‘stripping activity asset’.
9.An entity shall recognise a stripping activity asset if, and only if, all of the following are met:
it is probable that the future economic benefit (improved access to the ore body) associated with the stripping activity will flow to the entity;
the entity can identify the component of the ore body for which access has been improved; and
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. 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.
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:
cost of inventory produced compared with expected cost;
volume of waste extracted compared with expected volume, for a given volume of ore production; and
mineral content of the ore extracted compared with expected mineral content to be extracted, for a given quantity of ore produced.
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 A Effective date and transition
This appendix is an integral part of the Interpretation and has the same authority as the other parts of the Interpretation.
A1.An entity shall apply this Interpretation for annual periods beginning on or after 1 January 2013. Earlier application is permitted. If an entity applies this Interpretation for an earlier period, it shall disclose that fact.
A2.An entity shall apply this Interpretation to production stripping costs incurred on or after the beginning of the earliest period presented.
A3.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.
A4.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 beginning of the earliest period presented.