Mining companies

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rohit (Querist)
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08 September 2009 Pls let me know the accounting treatment of mining right acquired by Coal mining company in its books of a/c.

Whether it should consider the same as Asset?
If yes, then should it be considered as fixed asset or intangible asset?

How should the Company amortise/depreciate the same?

CA CS CIMA Prakash Somani

CA CS CIMA Prakash Somani (Expert)
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08 September 2009 It should be deferrred as ntangible asset

rohit

rohit (Querist)
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08 September 2009 While looking into the annual a/cs of most of the mining companies, I have not found that they had considered mining right as an intangible asset.
In Grasim ltd accounts, they have considered as part of leasehold land. Moreover, No AS, guidance note are there for mining companies. Pls let me know on what grounds you had considered as intangible asset..

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Asha Kanta Sharma

Asha Kanta Sharma

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03 August 2024 The accounting treatment of mining rights acquired by a coal mining company involves several considerations, as it pertains to asset classification and amortization. Here’s a detailed look at how to handle mining rights in the books of account:

### 1. **Classification of Mining Rights**

**1.1. As an Asset:**
Mining rights should indeed be considered an asset in the books of account. They represent a right to extract minerals and thus have significant value to the company.

**1.2. Fixed Asset vs. Intangible Asset:**
- **Intangible Asset:** Generally, mining rights are classified as intangible assets. This is because they represent a right to use land or resources without physical substance. They are acquired and held for generating economic benefits, which aligns with the characteristics of intangible assets.

- **Fixed Asset (Leasehold Land):** In some cases, mining rights might be classified under fixed assets, such as leasehold land. This treatment can occur when the mining rights are tied closely with land usage and the lease arrangement. However, this classification is less common and depends on the specific terms and conditions of the lease and local accounting practices.

### 2. **Accounting Treatment**

**2.1. Initial Recognition:**
Mining rights should be initially recognized at their cost, which includes all expenditures directly attributable to securing the right. This might include purchase price, legal fees, and other directly attributable costs.

**2.2. Amortization/Depreciation:**
- **Amortization:** Since mining rights are generally classified as intangible assets, they are typically amortized over the period of their useful life. The amortization period should reflect the period over which the company expects to benefit from the mining rights.

- **Depreciation:** If classified under fixed assets, depreciation might be applicable. However, for mining rights, amortization is the more appropriate treatment.

**2.3. Review and Impairment:**
Regularly review the carrying amount of mining rights for impairment. If the economic benefits expected from the mining rights diminish, impairment losses should be recognized.

### 3. **Guidance and Standards**

**3.1. Accounting Standards:**
- **International Accounting Standards (IAS) 38 – Intangible Assets:** This standard provides guidance on the recognition and measurement of intangible assets, including mining rights. According to IAS 38, mining rights are to be classified as intangible assets and amortized over their useful life.

- **Indian Accounting Standards (Ind AS) 38 – Intangible Assets:** Similarly, under Ind AS 38, mining rights should be treated as intangible assets.

**3.2. Local Practices:**
- Local accounting practices and standards may vary. It’s essential to check for any specific guidance issued by local regulatory bodies or industry norms.

### 4. **Practical Considerations**

**4.1. Industry Practice:**
While it’s common to classify mining rights as intangible assets, some companies might classify them differently based on specific circumstances or interpretations of accounting principles.

**4.2. Example from Grasim Ltd:**
Grasim Ltd’s treatment of mining rights as part of leasehold land could be based on specific terms of their lease agreements or local accounting practices. It's important to follow industry standards and regulatory guidelines in such cases.

### Summary

- **Mining rights** are typically considered **intangible assets** and should be amortized over their useful life.
- **Classification as fixed assets** might occur but is less common.
- **Amortization** should be based on the expected period of benefit, while **depreciation** is less applicable.
- Follow **IAS 38 or Ind AS 38** for guidance on treating mining rights.

Always consult with a professional accountant or auditor for advice tailored to your specific situation and to ensure compliance with relevant accounting standards.