Treatment of Pre-operating Expneses

[kashifkhan44]

What is the treatment of pre-operating expenses in the business of mines as per accounting standard and IFRS. Mines (Aggregate business), which standard will be apply on the above business.

For example, we received land from Govt on lease for exploration. we are paying annual basis payment to the Govt.

The Production is still under process.

[tariqab]

kashifkhan44,

As per knowledge, in KSA they have their own accounting standards.
As per IFRS
and IAS concern, you have to check IFRS-6 alongwith IAS-38-36.
As per my understanding, you are going to install crushers for aggregate production from rocks.

Regards
Tariq

[kashifkhan44]

Thx Mr. Tariq

[kamranACA]

Kashif,

Your question is very good and I wish to know more about the concern. Can you explain which sort of mining is it and how long has been the errection phase. How long is the mining agreement tenure? Which machinery and engineers you are using? Will you have to restore the site (under the contract) after the mining activity will be completed.

Can you please tell us what is the nature of pre-operating expenses? Are they separate from fixed capital expenditure?


Regards,



KAMRAN.

[tariqab]

KashifKhan

IF you need any further information regarding aggregate business, like, main activities, cost of production and major cost elements, i can provide u.

Regards
Tariq

[kamranACA]

Tariq,

It would be nice if you can share such info.

Regards,


KAMRAN.

[tariqab]

Kamran,

Aggregate business

1. Geographical survey conducted by the geologists team with prior approval of certain ministries to check the availability and checking of types of rocks/stone, its density, hardness, and after quarry run effects
2. Lease agreement with government i.e state, provincial or with municipality.
For payment normally advance annually or semi annually.
3. Blasting and drilling has been done thru using dynamite, after explosion these big rocks have been transported to very near crusher unloaded directly on directly screams(crushers’ conveyor’s belts, before it has been weighed on weighing bridge (quantity in M.tonns).
4. Crushing process consists of breaking rocks into different size, following will be finished products available to delivered, such of them are as follow

C - 2 ( Subbase) ,C - 33 ( 52 ) [12x50mm] C - 35 (VSI) [3/16"], plant crizzly, power screen.

Cost components

a) License fee/fixed monthly/semi-annually amount paid to Government (fixed cost in nature).
b) Blasting supplies (variable in nature)
c) Royalty after blasting %age to total quantity delivered at crushers for production. (variable in nature)
d) Equipment hires charges, material handling from quarry to crushers, such as excavator for loading purpose and dumper for transportation purpose (variable).
e) FOL expense for both vehicle and to run the crusher (Electric generators.)
f) Consumables hardware and store supplies for repair and maintenance.(80% fixed nature) because it is difficult to correlation with volume of production.
g) Salary and wages of labour and administration staff (fixed in nature), but we can measure how absorbed to the production (mean under/over abosorption.
h) Depreciation of plant and machinery.
i) Others overheads.


With illustrated cost components for normal actual capacity.

License fee 1%
Blasting supplies 4%
Royalty 11%
Equipment hire charges 32%
FOL 27%
Depreciation (PM) 6%
Hardware and other consumables 4%
Salary and wages 7%
Admin overheads 5%
Others crushers overheads 3%

Note

Proper MIS is required to monitor keenly daily efficiency and productively of crushers.
Such capacity installed with actual, like daily actual, best day and likewise monthy/annual.

Regards

Tariq