Psak 33
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statement of financial accounting standard 33 indonesian institute of accountants
accounting for general mining
1
statement of financial accounting standard (sfas) no. 33, accounting for general mining industry , was approved by the indonesian accounting principles committee on 24 august, 1994 and was ratified by the national council of the indonesian institute of accountants on 7 september, 1994. compliance with the policies contained in this statement is not obligatory in the case of immaterial items
jakarta, 7 september 1994 central committee the indonesian institute of accountants indonesian accounting principles committee hans kartikahadi jusuf halim hein g. surjaatmadja katjep k. abdoelkadir wahjudi prakarsa jan hoesada m. ashadi mirza mochtar ipg ary suta sobo sitorus timoty marnandus mirawati soedjono
2
chairperson secretary member member member member member member member member member member
statement of financial accounting standard 33 accounting for general mining industry contents paragraph introduction characteristics of general mining scope of application
01 - 07 01 - 04 05 - 07
exploration definition description of activities costs accounting treatment reporting of financial statements disclosure
08 - 27 08 - 10 11 - 15 16 17 - 24 25 - 26 27
development and construction description of activities types of costs accounting treatment presentation of financial statements disclosure
28 - 38 29 30 31 - 33 34 - 37 38
production definition description of activity type of costs accounting treatment presentation of financial statements disclosure
39 - 53 39 40 41 42 - 50 51 - 52 53
environmental management definition description of activity accounting treatment presentation of financial statements disclosure
54 - 66 54 - 55 56 - 57 58 - 64 65 66
transition period effective date
67 - 68 69
3
psak. 33
accounting for general mining
introduction characteristics of accounting for the general mining industry 01
there are four main activities in general mining industry :
a) b) c) d)
exploration development and construction production refinery enterprises in the general mining industry can be formed as integrated entities undertaking exploration, development and construction, production and processing, or as independently segregated entities.
02 the nature and characteristics of general mining industry differ from other industries. the main differences are as follow : a)
the exploration of mineral resources is an activity carrying a high degree of uncertainty. in spite of careful preparations, coupled with high costs, there is no assurance that the activity will result in the discovery of mineral reserves that are commercially feasible to be mined.
67
mining resource are by nature depletive and non-renewable. to conduct a mining activity, from exploration phase until processing phase, requires relatively high investment costs, intensive capital over a long period, significant risks and advanced erchnology, up to the point where professional management is necessary.
c)
in general, mining company’s operations are located in remote areas and cause damage to and/or pollute the environment. hence, mining enterprises are responsible for fulfilling the statutory environmental regulations besides having a clear post-mining concept.
68
the indonesian government does not issue mining concessions because according to prevailing regulations, all mineral resources in indonesia belong to the indonesian people and are to be used to increase the prosperity of the indonesia people. in order to operate in the general mining industry, the indonesian government sets regulations which authorizes entities or individual to conduct a general mining activity.
03 in mining industry, there are possibilities for joint efforts based on contract of work and contract of cooperation, either in terms of capital or joint operations. 04 as a result of the nature and characteristics of the mining industry, there are some specialized accounting treatments for the mining industry that differ from those for other industries, especially in accounting for exploration costs, development and construction costs, production costs, and environmental management costs.
4
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accounting for general mining
scope of application 05 this statement was prepared based on the nature and characteristics of the general mining industry in indonesia and to be guided by the basic financial accounting concepts covered by the financial accounting standards and statutory regulations. 06 similar with other financial accounting standards, this statement should be applied in the presentation of financial statements for external parties by every enterprise in the mining industry, including contractors under contract of work or contract of cooperation in the field of general mining. with this statement, both the preparer as well as the user of financial statements is required to follow the same accounting standard. if the accounting treatment is general in nature, then it still should be in accordance with financial accounting standard. 07 for purposes of and in relation with this statement, general mining operations are segregated into four phases of activity: a) b) c) d)
exploration (including evaluation) development and construction production, and environmental management
exploration definition 08
the terms used in this statement are defined as follows:
exploration is the effort expended in the search for, discovery and evaluation of proven reserves in a specific mining area during a specific time period in accordance with statutory regulations. proven reserves represents estimates of general mineral reserves in an area of interest which technically, as well as economically, can justify the possibility of production in the future based on the price of the general mineral resource at the date of estimation and its mining costs. area of interest represents a geological area which is expected to have the potential to yield general mineral reserves or has been proven to yield general mineral reserves. 09 an enterprise in a general mining industry may have more than one area of interest, and in certain area of interest may occur more than one phase of activity at the same time. 10 every area of interest has to be treated separately for the purpose of determining whether the costs incurred during exploration and development activities can be capitalized or expensed in the current period.
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accounting for general mining
description of activities 11 general survey. a general survey involves general geological or geophysical studies conducted on the land, beneath the sea and/or from air for the purpose of the drawing of a geological map or verifying the existence of mineral resources. 12 permit and administrative. permit and administrative represents activities performed in managing the permit to conduct exploration activities in a specific area, including the managing of the mining authority right (hak kuasa penambangan), contract of cooperation, contract of work, land authority and administrative of exploration activities. 13 geological and geophysical activities. geological activities include analyzing aerial prohographs and the geological mapping of land surfaces with the purpose of mapping the spread of minerals. geophysics is one form of exploration technology utilizing the physical characteristics of rock surveyed for purposes of extracting data from below the earth’s surface. 14 explorational drilling. drilling is used to obtain detailed data on the deposits below the earth’s surface. based on laboratory examination of the drilling samples, the type and content of the deposit can be determined. the results from several drilling samples can be correlated for the same type of rock and the amount of general mineral reserves can also calculated. 15 evaluation. evaluation is the process of determining the technical feasibility and commercial viability of a particular mineral reserve. activities during this phase include determining the volume and grade of the reserve, analyzing the impact on the environment, reviewing the permit required, reviewing mining methods, reviewing production process, conducting transportation surveys, reviewing infrastructure required, reviewing budgetary required, as well as reviewing the market value of the reserve and production plans. type of costs 16 the primary exploration costs, either directly or indirectly related to the exploration activities are as follows: a)
general survey costs commonly incurred under the general survey stage include : (i) (ii) (iii) (iv)
literature study cost; satellite data gathering and aerial photograph costs; geological mapping; and surface sample analysis costs.
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b)
permit and administrative requirements costs costs incurred under permit and administrative requirements include : (i) (ii) (iii) (iv) (v)
c)
costs for acquiring mining authority costs for acquiring contract of cooperation costs for acquiring contract of work; land and vegetation compensation costs; and exploration administrative costs.
geology and geophysics costs incurred under geological and geophysical activities include : (i) (ii) (iii) (iv) (v) (vi)
d)
accounting for general mining
side looking air radar (slar) costs; field geology costs; chemistry geological costs, including laboratory test analysis; gravitational survey costs; magnetic examination costs; and seismic examination cost.
exploration drilling cost incurred under exploratory drilling include : (i)
area preparation costs, including cost of constructing the entrance road to drilling location; (ii) drilling costs, including drilling instruments; (iii) mobilization and demobilization; (iv) testing and finishing costs; and (v) logistic costs incurred during drilling activities.
e)
evaluation represent costs incurred during evaluation activities.
accounting treatment 17 costs incurred in connection with exploration and evaluation activities in an area of interest should be expensed in the current period, except whin one of the following conditions is met, then the costs can be deferred: 69
permit to conduct exploration in the area of interest is still valid and exploration activities have not been completed at the balance sheet date, as well as significant exploration activities in the area of interest are still in progress, which up to this point no determination can be made as to whether the exploration will result in the discovery of a proven reserves.
70
permit to conduct mining activities in the area of interest is still valid and it can be proven that the exploration costs incurred will be recovered through the production of proven reserves or from the results which will be obtained through transferring the mining rights to another party.
7
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accounting for general mining
18 fixed assets depreciation expenses that support exploration activities are allocated as exploration costs. 19 if a general survey does not relate specifically to a certain exploration program, the expense incurred for such activity is charged in the current period. 20 interest costs incurred as a result of financing exploration activities are deferred (as long as the exploration costs can also be deferred) in accordance with statement of financial accounting standard no. 26, accounting for interest during construction period. 21 general and administration expenses directly related to exploration activities is deferred as a part of deferred exploration costs. 22 other income derived during exploration activities is charged against deferred exploration costs. 23
for amortization of exploration costs refer to paragraph 31(e).
24 the present value of deferred exploration costs should be calculated and reported as stated in paragraph 50. presentation of financial statements 25 the amount of exploration costs charged in the current period (other than amortization of deferred exploration costs) is presented separately in the income statement as exploration expenses. 26 deferred charges resulting from exploration activities are presented as deferred exploration costs. disclosure 27
the following items should be disclosed in the notes to financial statements :
a)
accounting policies in connection with the basis for: (i)
deferred exploration costs of exploration activities in progress with a description on the period of contract of related area of interest.
(ii)
deferred exploration costs of exploration activities that has resulted in the discovery of proven reserves with a description that the amortization begins when production begins.
b)
the deferred exploration costs for exploration activities still in progress and the deferred exploration costs for exploration activities that have discovered proven reserves should be presented separately..
c)
if there is more than one area of interest, the details of deferred exploration costs for each area of interest should be disclosed.
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d)
accounting for general mining
the total amount of exploration costs expensed in the current period and the reasons for doing so.
9
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accounting for general mining
development and construction 28
the terms used in this statement are defined as follows :
development includes all activities conducted in the preparation of proven reserves until commercial production. construction is building facilities and infrastructure that conduct and support production activities. description of activities 29
the development and construction stage includes administration and technical activities.
administration activities represents activities performed in managing the permit required in general mining to support the implementation of development and construction activities.. technical activities including planning activities and stripping activities to gain access to the mineral reserves as part of the preparation for production activities. type of costs 30 the primary types of development and construction costs, either directly or indirectly related to to development and construction activities are as follows : a)
development costs costs incurred during development activities include: (i)
administrative costs: costs of managing permit and the mining authority. land excarvation costs (ii) land clearing costs (iii) mine opening costs, including stripping the land sufrac before production. b)
construction costs costs incurred during construction activities include: : (i) infrastructure establishment cost (ii) building establishment costs; and (iii) machinery and equipment establishment costs
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accounting for general mining
accounting treatment 31
development costs include:
(a)
costs incurred in connection with development activities in a certain area of interest, either directly or undirectly, are deferred as deferred development costs
(b)
depreciation costs on fixed assets used in conducting development activities are deferred as a part of deferred development costs.
(c)
general and administrative costs which are directly related to development activities are deferred as a part of deferred development costs. general and administrative costs which are not directly related to development activities should be treated as expenses in the current period..
(d)
when production in an area of interest commences, accumulated deferred development costs and accumulated deferred exploration costs for the same area of interest are totaled, and the total amount of these costs is amortized. the amortization costs is expensed as part of production costs.
71
amortization is calculated based on the unit-of-production method. under certain circumstances, the amortization is calculated based on the estimated useful economic life, of the area of interest if it is considered to result in more accurate financial information. the basis for calculating of amortization should be applied consistently. if the unit-of-production method is used, the amortization rate each year should be based on the reasonable reserves which could be produced until the end of the operation. if the amortization is based on the passage of time, then the estimated economic useful life should not be longer than the operation period. the operation period is based on the prevailing permit.
(f)
if a production activity in an area of interest is delayed, although the development stage is completed, then at the end of each accounting period during the postponement accumulated deferred development and exploration costs should be reevaluated to determine whether such costs are recoverable from the related reserve production. if estimated production is lower than the deferred costs, then the difference should be charged against current period. this evaluation method is explained in paragraph 50.
32 construction cost. all costs incurred as a result of construction are capitalized as fixed assets, and later depreciated based on the economic life of related assets. depreciation costs are as follows: a)
for fixed assets directly used in the production process depreciation starts when commercial production begins. the depreciation expense is charged as production costs.
b)
for fixed assets not directly used in production process depreciation starts when the construction of such fixed assets is complete. the depreciation expense is expensed as part of operating expense in the current period.
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accounting for general mining
33 interest expenses incurred from financing development and construction works is deferred or capitalized with reference to the financial accounting standard 26, accounting for interest during construction periods. presentation of financial statements 34 deferred development costs is presented in balance sheet together with deferred exploration costs (for exploration activities which have discovered proven reserves) as deferred exploration and development costs. 35 for accounting periods where commercial production has commenced, deferred exploration and development costs are presented as the net amount after deduction of amortization. 36 the amount of write down resulting from the evaluation of deferred exploration and development costs, as mentioned in paragraph 31 (f), is presented separately in income statements as a decrease in deferred exploration and development costs. 37
the cost of construction in progress is presented as construction works in progress.
disclosure 38
the following should be disclosed in the notes to the financial statements.
a)
accounting policies on : (i) (ii)
basis for determining the deferral of development costs and capitalization of construction and facilities works. methods of amortization and depreciation used and information on the period of mining license and estimated economic life of the mine. with an explanation on the duration of the mining permit and estimated economic useful life of the mine.
b)
deferred development costs for development activities that are still in progress.
c)
deferred exploration and development costs where there is a delay in production, including explanations : (i) (ii)
reasons for delay, uncalculated amortized amount because the production value has not been estimated, and (iii) the amount of write down, if any, resulting from the evaluation of the deferred costs and the method and basic assumptions used in calculating the write downs.. d)
when there is more than one area of interest, the deferred exploration and development costs for each area of interest should be disclosed separately.
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accounting for general mining
production definition 39
the terms used in mining production (operation) activities are defined as follows:
production includes all activities ranging from the extracting proven reserves up to when they are ready to be sold, used, or processed further. description of activity 40 mine production activities include: stripping, extracting, washing and cleaning, and transporting materials to collection station. a)
stripping during production period includes harrowing/pushing, excavating/loading and transporting soil from excavation location to the filling location or other location.
b)
extracting the mineral resources using methods in accordance with the nature and characteristics of the related minerals such as :excavation, spraying with water, using bulldoxers and shovels, dredging and blasting.
c)
washing of minerals, including activities conducted to clean and separate the minerals from other minerals or by-products such as soil, ash, sand, clay, sulfur, mud and other impurities. washing is performed by means of water, chemicals, machinery such as jigs or filters. washing includes the process of breaking large chunks of minerals into the desired size for eventual sale or to be processed further.
d)
transporting minerals from the mine site to collection station is performed by using conveyor belt, carrying lorry, dump truck, barge or ship.
some mining enterprises can conduct more extensive processing in addition to the processes outlined above. type of costs 41 the primary mining costs, either directly or indirectly related to production activities are as follows : a)
stripping during the production period costs incurred during stripping include : (i) stripping costs; (ii) cost for acquiring filling site; and (iii) costs of filling after the stripping process.
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b)
mineral extraction costs incurred in the extraction of minerals include: (i) (ii) (iii) (iv)
c)
accounting for general mining
excavation costs spraying cost; dredging or blasting costs; and filling costs.
minerals washing costs incurred during the mineral washing include: (i) (ii)
costs of washing and separating minerals from the by-products costs of shaping the minerals into standard measurement/size which has been determined by the industry.
d)
transporting minerals represents costs incurred in transporting minerals from mining site to pooling station.
e)
environmental management represents costs incurred in managing and preserving the environment.
accounting treatment 42
all costs incurred that relate to production should be recorded as work in process.
43 costs of production include production costs that take into account the beginning and ending balance of work in process. 44 unit costs of inventory are calculated using the average method or the first-in first-out method. 45
inventory includes work in process, finished goods and ancillary materials.
46 there are two kinds of stripping costs : the initial striping which is conducted before production commences and the ongoing stripping which is conducted during the production period. the initial stripping costs are part of deferred development costs, and the ongoing stripping costs are expensed as production costs..
14
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accounting for general mining
before the commencement of production, the average stripping ratio is calculated. the average stripping ratio is the ratio of the estimated rock/land cover layer to the estimated amount of mineral content (such as coal) stated in unit quantity 47 further stripping costs are charged as production costs based on average stripping ratio. in a condition where actual stripping ratio (ie. a ratio between the quantity of soil stripped in certain period and the quantity of reserve production in the same period) does not differ much from the average ratio, then stripping cost incurred in the period could be charged wholly as a production cost. if the actual ratio is significantly different from the average ratio, as in the case when the actual ratio is higher than average ration, the excess stripping costs is deferred and recorded as deferred stripping costs. in addition, these deferred costs are expensed as production costs in periods where the actual ratio is significantly lower than the average ration. 48 if there is a change in the average stripping ratio then this change represents a change in estimate. 49 during the period of production, frequent evaluations should be made regarding the estimate of the proven reserves which could be produced, and a\the additional estimated development costs which would be required to produce these reserves in the future. these estimates form the basis for amortization of deferred exploration and development costs. 50 by the end of each accounting period, the balance of deferred exploration and development costs needs to be evaluated as to its fairness by comparing the balance with the present value of estimated production of minerals during the remainder of the mine’s life (the rest of the mine life could not be longer than the period of exploitation as indicated in the mining license). if the estimate of production turns out to be lower than the balance of deferred costs, the difference should be charged in the current period. presentation of financial statements 51 inventory is presented in the balance sheet using the lower of acquisition cost or market value. the market value is the estimated selling price at the balance sheet date reduced by the estimated expense incurred in connection with selling the product. 52 the total amount of the write down from deferred exploration and development costs is presented in accordance with paragraph 36. disclosure 53
the following information should be disclosed in the notes to the financial statements :
a)
accounting policies relating to : (i) method of determining cost of inventory and the basis for valuation (ii) method of expensing the stripping cost; and (iii) method to calculate the average stripping ratio.
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accounting for general mining
b)
the total amount of deferred stripping costs with an explanation of the differences between the actual stripping ratio and the average ratio.
c)
change in average stripping ratio (if any).
d)
disclosure as stated in paragraph 38 (c).
environmental management definition 54 environment means a continuum with all objects, energy, conditions and living organism, including human beings and their behavioral characteristics, which influence the existence and prosperity of human beings and other living organism. 55 with the existence of mining activities in a certain location, the effects on the environment around the mining includes, but not limited to, the following: a)
environmental pollutionmeans the entrance or insertion of living organisms, substances, energy and other components into the environment and/or the change in the ecosystem by man.s activities or natural processes up to the point where the quality of the environment has been diminished or cannot function to perform its intended purposes.
72
environmental damage means actions that result directly or indirectly in charges to the characteristics and/or biological make up of area so that it ceases to support the continuing development. as effort to lessen and control the negative effects of mining on the environment, environmental management should be conducted which includes a concerted effort in the preservation, arrangement, maintenance, control and development of the environment.
description of activity 56
activities conducted in environmental management include but are not limited to:
a)
analysis of environmental impact (amdal) documents
b)
effort to prevent the pollution of rivers by leakage from mines by building sediment pools around the excarvation location, dumping area and stockpile. included in this activity is draining mud from the sediment pools.
c)
landscaping is conformed to topographical and hydrological conditions. these activities include: (i) (ii)
shaping slope gradient to lessen runoff, erosion, landslides and sedimentation shaping drainage so water does not frow to certain areas to limit erosion.
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accounting for general mining
d)
topsoil management are activities conducted in removing and preserving topsoil from the mining location and piling it so that it can be reused in the reclamation for the former completed mining site.
e)
revegetation, is the replanting of ther former mining site where the original vegetation has been destroyed or tampered with..
f)
erosion control, is an activity involving the planting of grasses, development of terraces and/or drainage pipes/channels to guard against land erosion.
g)
preventing dust pollution includes spraying water on roads leading to the production area, the loading station and stockpile, and spraying other potentially dusty locations.
h)
efforts to prevent landslides by reducing the gradients of slopes, building slopes and dikes
i)
researching the soil and plants to determine appropriate planting techniques
j)
monitoring the quality of water flowing from sediment pools, drainpipies and rivers near the mine.
k)
monitoring the air quality at the mining location, employees’ quarters and the surroundings.
l)
monitoring the quality of soil in the dumping area.
m)
monitoring the extent of the vegetation area damaged and revegetated.
n)
monitoring the result of controlling and managing of environmental protection.
o)
monitoring the rate of erosion.
57 environmental management costs include, but are not limited to, costs related to activities described above. basically, these costs are costs in building environmental management infrastructure, costs arising from efforts to reduce and control the negative impact of mining activities, and other routine costs. accounting treatment 58 the costs of building environmental management infrastructure are capitalized as fixed assets and depreciated systematically based on the economic useful life.
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accounting for general mining
59 estimation of environmental management costs should be accrued, if the following conditions are met : a) b)
there is a strong indication that a liability, resulting from these activities, arises from these activities; and there is a reasonable basis to calculate the amount of such a liability.
60 cost estimation for environmental management as a result of exploration and development activities is accrued by debiting deferred environmental management costs and crediting liabilities (provision). this deferred costs will be amortized as commercial production begins and the amortization expense is recorded as production cost. 61 the estimated cost for environmental management which is incurred in connection with production activities is expensed as production cost by crediting the liability (provision) for environmental management.. 62 payment of environmental management liabilities during the current period is recorded as a reduction of the estimated liability for environmental management. 63 at balance sheet date, the amount of estimated liability for environmental management should be reevaluated to determine whether the amount of accrual is adequate. 64 if the amount of environmental management costs occurs in the current year is greater than the amount accrued, then the difference should be charged against production cost where such excess is incurred. presentation of financial statements 65 estimated liability for environmental management should be presented in the balance sheet at the accrued amount less actual expenditures. disclosure 66
the following information should be disclosed in the notes to financial statements :
a)
accounting policies on: (i) accounting treatment on expensing environmental management costs; (ii) amortization method for deferred environmental management costs; and (iii) depreciation method of environmental management infrastructure.
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b)
accounting for general mining
the activity in the estimated liability for environmental management in the current year showing : (i) (ii) (iii) (iv)
beginning balance; the provision made; actual expenditures; and ending balance.
c)
environmental management activity which have been conducted and are in progress
d)
contingent liabilities in connection with environmental management and other contingent liabilities as described in the financial accounting standards.
transition period 73
the changes arising from the application of this statement does not constitute a cumulative effect of a change in accounting policy. therefore in preparing financial statements adopting this new method, the previous period’s ending balance will be the beginning balance for the current period
68 the estimated remaining liability for environmental management relating to prior activities (the difference between estimated total liabilities and the actual expenditures) is expensed prospectively from the effective date of this statement through a systematic amortization over the remaining useful life of the mine and is presented after operating profit items. the amortization method and duration should be disclosed in the notes to the financial statements effective date 74
this statement becomes effective for financial statements covering periods beginning on or after january 1, 1995
75
19
accounting for general mining
1
statement of financial accounting standard (sfas) no. 33, accounting for general mining industry , was approved by the indonesian accounting principles committee on 24 august, 1994 and was ratified by the national council of the indonesian institute of accountants on 7 september, 1994. compliance with the policies contained in this statement is not obligatory in the case of immaterial items
jakarta, 7 september 1994 central committee the indonesian institute of accountants indonesian accounting principles committee hans kartikahadi jusuf halim hein g. surjaatmadja katjep k. abdoelkadir wahjudi prakarsa jan hoesada m. ashadi mirza mochtar ipg ary suta sobo sitorus timoty marnandus mirawati soedjono
2
chairperson secretary member member member member member member member member member member
statement of financial accounting standard 33 accounting for general mining industry contents paragraph introduction characteristics of general mining scope of application
01 - 07 01 - 04 05 - 07
exploration definition description of activities costs accounting treatment reporting of financial statements disclosure
08 - 27 08 - 10 11 - 15 16 17 - 24 25 - 26 27
development and construction description of activities types of costs accounting treatment presentation of financial statements disclosure
28 - 38 29 30 31 - 33 34 - 37 38
production definition description of activity type of costs accounting treatment presentation of financial statements disclosure
39 - 53 39 40 41 42 - 50 51 - 52 53
environmental management definition description of activity accounting treatment presentation of financial statements disclosure
54 - 66 54 - 55 56 - 57 58 - 64 65 66
transition period effective date
67 - 68 69
3
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accounting for general mining
introduction characteristics of accounting for the general mining industry 01
there are four main activities in general mining industry :
a) b) c) d)
exploration development and construction production refinery enterprises in the general mining industry can be formed as integrated entities undertaking exploration, development and construction, production and processing, or as independently segregated entities.
02 the nature and characteristics of general mining industry differ from other industries. the main differences are as follow : a)
the exploration of mineral resources is an activity carrying a high degree of uncertainty. in spite of careful preparations, coupled with high costs, there is no assurance that the activity will result in the discovery of mineral reserves that are commercially feasible to be mined.
67
mining resource are by nature depletive and non-renewable. to conduct a mining activity, from exploration phase until processing phase, requires relatively high investment costs, intensive capital over a long period, significant risks and advanced erchnology, up to the point where professional management is necessary.
c)
in general, mining company’s operations are located in remote areas and cause damage to and/or pollute the environment. hence, mining enterprises are responsible for fulfilling the statutory environmental regulations besides having a clear post-mining concept.
68
the indonesian government does not issue mining concessions because according to prevailing regulations, all mineral resources in indonesia belong to the indonesian people and are to be used to increase the prosperity of the indonesia people. in order to operate in the general mining industry, the indonesian government sets regulations which authorizes entities or individual to conduct a general mining activity.
03 in mining industry, there are possibilities for joint efforts based on contract of work and contract of cooperation, either in terms of capital or joint operations. 04 as a result of the nature and characteristics of the mining industry, there are some specialized accounting treatments for the mining industry that differ from those for other industries, especially in accounting for exploration costs, development and construction costs, production costs, and environmental management costs.
4
psak. 33
accounting for general mining
scope of application 05 this statement was prepared based on the nature and characteristics of the general mining industry in indonesia and to be guided by the basic financial accounting concepts covered by the financial accounting standards and statutory regulations. 06 similar with other financial accounting standards, this statement should be applied in the presentation of financial statements for external parties by every enterprise in the mining industry, including contractors under contract of work or contract of cooperation in the field of general mining. with this statement, both the preparer as well as the user of financial statements is required to follow the same accounting standard. if the accounting treatment is general in nature, then it still should be in accordance with financial accounting standard. 07 for purposes of and in relation with this statement, general mining operations are segregated into four phases of activity: a) b) c) d)
exploration (including evaluation) development and construction production, and environmental management
exploration definition 08
the terms used in this statement are defined as follows:
exploration is the effort expended in the search for, discovery and evaluation of proven reserves in a specific mining area during a specific time period in accordance with statutory regulations. proven reserves represents estimates of general mineral reserves in an area of interest which technically, as well as economically, can justify the possibility of production in the future based on the price of the general mineral resource at the date of estimation and its mining costs. area of interest represents a geological area which is expected to have the potential to yield general mineral reserves or has been proven to yield general mineral reserves. 09 an enterprise in a general mining industry may have more than one area of interest, and in certain area of interest may occur more than one phase of activity at the same time. 10 every area of interest has to be treated separately for the purpose of determining whether the costs incurred during exploration and development activities can be capitalized or expensed in the current period.
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accounting for general mining
description of activities 11 general survey. a general survey involves general geological or geophysical studies conducted on the land, beneath the sea and/or from air for the purpose of the drawing of a geological map or verifying the existence of mineral resources. 12 permit and administrative. permit and administrative represents activities performed in managing the permit to conduct exploration activities in a specific area, including the managing of the mining authority right (hak kuasa penambangan), contract of cooperation, contract of work, land authority and administrative of exploration activities. 13 geological and geophysical activities. geological activities include analyzing aerial prohographs and the geological mapping of land surfaces with the purpose of mapping the spread of minerals. geophysics is one form of exploration technology utilizing the physical characteristics of rock surveyed for purposes of extracting data from below the earth’s surface. 14 explorational drilling. drilling is used to obtain detailed data on the deposits below the earth’s surface. based on laboratory examination of the drilling samples, the type and content of the deposit can be determined. the results from several drilling samples can be correlated for the same type of rock and the amount of general mineral reserves can also calculated. 15 evaluation. evaluation is the process of determining the technical feasibility and commercial viability of a particular mineral reserve. activities during this phase include determining the volume and grade of the reserve, analyzing the impact on the environment, reviewing the permit required, reviewing mining methods, reviewing production process, conducting transportation surveys, reviewing infrastructure required, reviewing budgetary required, as well as reviewing the market value of the reserve and production plans. type of costs 16 the primary exploration costs, either directly or indirectly related to the exploration activities are as follows: a)
general survey costs commonly incurred under the general survey stage include : (i) (ii) (iii) (iv)
literature study cost; satellite data gathering and aerial photograph costs; geological mapping; and surface sample analysis costs.
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b)
permit and administrative requirements costs costs incurred under permit and administrative requirements include : (i) (ii) (iii) (iv) (v)
c)
costs for acquiring mining authority costs for acquiring contract of cooperation costs for acquiring contract of work; land and vegetation compensation costs; and exploration administrative costs.
geology and geophysics costs incurred under geological and geophysical activities include : (i) (ii) (iii) (iv) (v) (vi)
d)
accounting for general mining
side looking air radar (slar) costs; field geology costs; chemistry geological costs, including laboratory test analysis; gravitational survey costs; magnetic examination costs; and seismic examination cost.
exploration drilling cost incurred under exploratory drilling include : (i)
area preparation costs, including cost of constructing the entrance road to drilling location; (ii) drilling costs, including drilling instruments; (iii) mobilization and demobilization; (iv) testing and finishing costs; and (v) logistic costs incurred during drilling activities.
e)
evaluation represent costs incurred during evaluation activities.
accounting treatment 17 costs incurred in connection with exploration and evaluation activities in an area of interest should be expensed in the current period, except whin one of the following conditions is met, then the costs can be deferred: 69
permit to conduct exploration in the area of interest is still valid and exploration activities have not been completed at the balance sheet date, as well as significant exploration activities in the area of interest are still in progress, which up to this point no determination can be made as to whether the exploration will result in the discovery of a proven reserves.
70
permit to conduct mining activities in the area of interest is still valid and it can be proven that the exploration costs incurred will be recovered through the production of proven reserves or from the results which will be obtained through transferring the mining rights to another party.
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accounting for general mining
18 fixed assets depreciation expenses that support exploration activities are allocated as exploration costs. 19 if a general survey does not relate specifically to a certain exploration program, the expense incurred for such activity is charged in the current period. 20 interest costs incurred as a result of financing exploration activities are deferred (as long as the exploration costs can also be deferred) in accordance with statement of financial accounting standard no. 26, accounting for interest during construction period. 21 general and administration expenses directly related to exploration activities is deferred as a part of deferred exploration costs. 22 other income derived during exploration activities is charged against deferred exploration costs. 23
for amortization of exploration costs refer to paragraph 31(e).
24 the present value of deferred exploration costs should be calculated and reported as stated in paragraph 50. presentation of financial statements 25 the amount of exploration costs charged in the current period (other than amortization of deferred exploration costs) is presented separately in the income statement as exploration expenses. 26 deferred charges resulting from exploration activities are presented as deferred exploration costs. disclosure 27
the following items should be disclosed in the notes to financial statements :
a)
accounting policies in connection with the basis for: (i)
deferred exploration costs of exploration activities in progress with a description on the period of contract of related area of interest.
(ii)
deferred exploration costs of exploration activities that has resulted in the discovery of proven reserves with a description that the amortization begins when production begins.
b)
the deferred exploration costs for exploration activities still in progress and the deferred exploration costs for exploration activities that have discovered proven reserves should be presented separately..
c)
if there is more than one area of interest, the details of deferred exploration costs for each area of interest should be disclosed.
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d)
accounting for general mining
the total amount of exploration costs expensed in the current period and the reasons for doing so.
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accounting for general mining
development and construction 28
the terms used in this statement are defined as follows :
development includes all activities conducted in the preparation of proven reserves until commercial production. construction is building facilities and infrastructure that conduct and support production activities. description of activities 29
the development and construction stage includes administration and technical activities.
administration activities represents activities performed in managing the permit required in general mining to support the implementation of development and construction activities.. technical activities including planning activities and stripping activities to gain access to the mineral reserves as part of the preparation for production activities. type of costs 30 the primary types of development and construction costs, either directly or indirectly related to to development and construction activities are as follows : a)
development costs costs incurred during development activities include: (i)
administrative costs: costs of managing permit and the mining authority. land excarvation costs (ii) land clearing costs (iii) mine opening costs, including stripping the land sufrac before production. b)
construction costs costs incurred during construction activities include: : (i) infrastructure establishment cost (ii) building establishment costs; and (iii) machinery and equipment establishment costs
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accounting for general mining
accounting treatment 31
development costs include:
(a)
costs incurred in connection with development activities in a certain area of interest, either directly or undirectly, are deferred as deferred development costs
(b)
depreciation costs on fixed assets used in conducting development activities are deferred as a part of deferred development costs.
(c)
general and administrative costs which are directly related to development activities are deferred as a part of deferred development costs. general and administrative costs which are not directly related to development activities should be treated as expenses in the current period..
(d)
when production in an area of interest commences, accumulated deferred development costs and accumulated deferred exploration costs for the same area of interest are totaled, and the total amount of these costs is amortized. the amortization costs is expensed as part of production costs.
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amortization is calculated based on the unit-of-production method. under certain circumstances, the amortization is calculated based on the estimated useful economic life, of the area of interest if it is considered to result in more accurate financial information. the basis for calculating of amortization should be applied consistently. if the unit-of-production method is used, the amortization rate each year should be based on the reasonable reserves which could be produced until the end of the operation. if the amortization is based on the passage of time, then the estimated economic useful life should not be longer than the operation period. the operation period is based on the prevailing permit.
(f)
if a production activity in an area of interest is delayed, although the development stage is completed, then at the end of each accounting period during the postponement accumulated deferred development and exploration costs should be reevaluated to determine whether such costs are recoverable from the related reserve production. if estimated production is lower than the deferred costs, then the difference should be charged against current period. this evaluation method is explained in paragraph 50.
32 construction cost. all costs incurred as a result of construction are capitalized as fixed assets, and later depreciated based on the economic life of related assets. depreciation costs are as follows: a)
for fixed assets directly used in the production process depreciation starts when commercial production begins. the depreciation expense is charged as production costs.
b)
for fixed assets not directly used in production process depreciation starts when the construction of such fixed assets is complete. the depreciation expense is expensed as part of operating expense in the current period.
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accounting for general mining
33 interest expenses incurred from financing development and construction works is deferred or capitalized with reference to the financial accounting standard 26, accounting for interest during construction periods. presentation of financial statements 34 deferred development costs is presented in balance sheet together with deferred exploration costs (for exploration activities which have discovered proven reserves) as deferred exploration and development costs. 35 for accounting periods where commercial production has commenced, deferred exploration and development costs are presented as the net amount after deduction of amortization. 36 the amount of write down resulting from the evaluation of deferred exploration and development costs, as mentioned in paragraph 31 (f), is presented separately in income statements as a decrease in deferred exploration and development costs. 37
the cost of construction in progress is presented as construction works in progress.
disclosure 38
the following should be disclosed in the notes to the financial statements.
a)
accounting policies on : (i) (ii)
basis for determining the deferral of development costs and capitalization of construction and facilities works. methods of amortization and depreciation used and information on the period of mining license and estimated economic life of the mine. with an explanation on the duration of the mining permit and estimated economic useful life of the mine.
b)
deferred development costs for development activities that are still in progress.
c)
deferred exploration and development costs where there is a delay in production, including explanations : (i) (ii)
reasons for delay, uncalculated amortized amount because the production value has not been estimated, and (iii) the amount of write down, if any, resulting from the evaluation of the deferred costs and the method and basic assumptions used in calculating the write downs.. d)
when there is more than one area of interest, the deferred exploration and development costs for each area of interest should be disclosed separately.
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accounting for general mining
production definition 39
the terms used in mining production (operation) activities are defined as follows:
production includes all activities ranging from the extracting proven reserves up to when they are ready to be sold, used, or processed further. description of activity 40 mine production activities include: stripping, extracting, washing and cleaning, and transporting materials to collection station. a)
stripping during production period includes harrowing/pushing, excavating/loading and transporting soil from excavation location to the filling location or other location.
b)
extracting the mineral resources using methods in accordance with the nature and characteristics of the related minerals such as :excavation, spraying with water, using bulldoxers and shovels, dredging and blasting.
c)
washing of minerals, including activities conducted to clean and separate the minerals from other minerals or by-products such as soil, ash, sand, clay, sulfur, mud and other impurities. washing is performed by means of water, chemicals, machinery such as jigs or filters. washing includes the process of breaking large chunks of minerals into the desired size for eventual sale or to be processed further.
d)
transporting minerals from the mine site to collection station is performed by using conveyor belt, carrying lorry, dump truck, barge or ship.
some mining enterprises can conduct more extensive processing in addition to the processes outlined above. type of costs 41 the primary mining costs, either directly or indirectly related to production activities are as follows : a)
stripping during the production period costs incurred during stripping include : (i) stripping costs; (ii) cost for acquiring filling site; and (iii) costs of filling after the stripping process.
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b)
mineral extraction costs incurred in the extraction of minerals include: (i) (ii) (iii) (iv)
c)
accounting for general mining
excavation costs spraying cost; dredging or blasting costs; and filling costs.
minerals washing costs incurred during the mineral washing include: (i) (ii)
costs of washing and separating minerals from the by-products costs of shaping the minerals into standard measurement/size which has been determined by the industry.
d)
transporting minerals represents costs incurred in transporting minerals from mining site to pooling station.
e)
environmental management represents costs incurred in managing and preserving the environment.
accounting treatment 42
all costs incurred that relate to production should be recorded as work in process.
43 costs of production include production costs that take into account the beginning and ending balance of work in process. 44 unit costs of inventory are calculated using the average method or the first-in first-out method. 45
inventory includes work in process, finished goods and ancillary materials.
46 there are two kinds of stripping costs : the initial striping which is conducted before production commences and the ongoing stripping which is conducted during the production period. the initial stripping costs are part of deferred development costs, and the ongoing stripping costs are expensed as production costs..
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accounting for general mining
before the commencement of production, the average stripping ratio is calculated. the average stripping ratio is the ratio of the estimated rock/land cover layer to the estimated amount of mineral content (such as coal) stated in unit quantity 47 further stripping costs are charged as production costs based on average stripping ratio. in a condition where actual stripping ratio (ie. a ratio between the quantity of soil stripped in certain period and the quantity of reserve production in the same period) does not differ much from the average ratio, then stripping cost incurred in the period could be charged wholly as a production cost. if the actual ratio is significantly different from the average ratio, as in the case when the actual ratio is higher than average ration, the excess stripping costs is deferred and recorded as deferred stripping costs. in addition, these deferred costs are expensed as production costs in periods where the actual ratio is significantly lower than the average ration. 48 if there is a change in the average stripping ratio then this change represents a change in estimate. 49 during the period of production, frequent evaluations should be made regarding the estimate of the proven reserves which could be produced, and a\the additional estimated development costs which would be required to produce these reserves in the future. these estimates form the basis for amortization of deferred exploration and development costs. 50 by the end of each accounting period, the balance of deferred exploration and development costs needs to be evaluated as to its fairness by comparing the balance with the present value of estimated production of minerals during the remainder of the mine’s life (the rest of the mine life could not be longer than the period of exploitation as indicated in the mining license). if the estimate of production turns out to be lower than the balance of deferred costs, the difference should be charged in the current period. presentation of financial statements 51 inventory is presented in the balance sheet using the lower of acquisition cost or market value. the market value is the estimated selling price at the balance sheet date reduced by the estimated expense incurred in connection with selling the product. 52 the total amount of the write down from deferred exploration and development costs is presented in accordance with paragraph 36. disclosure 53
the following information should be disclosed in the notes to the financial statements :
a)
accounting policies relating to : (i) method of determining cost of inventory and the basis for valuation (ii) method of expensing the stripping cost; and (iii) method to calculate the average stripping ratio.
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accounting for general mining
b)
the total amount of deferred stripping costs with an explanation of the differences between the actual stripping ratio and the average ratio.
c)
change in average stripping ratio (if any).
d)
disclosure as stated in paragraph 38 (c).
environmental management definition 54 environment means a continuum with all objects, energy, conditions and living organism, including human beings and their behavioral characteristics, which influence the existence and prosperity of human beings and other living organism. 55 with the existence of mining activities in a certain location, the effects on the environment around the mining includes, but not limited to, the following: a)
environmental pollutionmeans the entrance or insertion of living organisms, substances, energy and other components into the environment and/or the change in the ecosystem by man.s activities or natural processes up to the point where the quality of the environment has been diminished or cannot function to perform its intended purposes.
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environmental damage means actions that result directly or indirectly in charges to the characteristics and/or biological make up of area so that it ceases to support the continuing development. as effort to lessen and control the negative effects of mining on the environment, environmental management should be conducted which includes a concerted effort in the preservation, arrangement, maintenance, control and development of the environment.
description of activity 56
activities conducted in environmental management include but are not limited to:
a)
analysis of environmental impact (amdal) documents
b)
effort to prevent the pollution of rivers by leakage from mines by building sediment pools around the excarvation location, dumping area and stockpile. included in this activity is draining mud from the sediment pools.
c)
landscaping is conformed to topographical and hydrological conditions. these activities include: (i) (ii)
shaping slope gradient to lessen runoff, erosion, landslides and sedimentation shaping drainage so water does not frow to certain areas to limit erosion.
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accounting for general mining
d)
topsoil management are activities conducted in removing and preserving topsoil from the mining location and piling it so that it can be reused in the reclamation for the former completed mining site.
e)
revegetation, is the replanting of ther former mining site where the original vegetation has been destroyed or tampered with..
f)
erosion control, is an activity involving the planting of grasses, development of terraces and/or drainage pipes/channels to guard against land erosion.
g)
preventing dust pollution includes spraying water on roads leading to the production area, the loading station and stockpile, and spraying other potentially dusty locations.
h)
efforts to prevent landslides by reducing the gradients of slopes, building slopes and dikes
i)
researching the soil and plants to determine appropriate planting techniques
j)
monitoring the quality of water flowing from sediment pools, drainpipies and rivers near the mine.
k)
monitoring the air quality at the mining location, employees’ quarters and the surroundings.
l)
monitoring the quality of soil in the dumping area.
m)
monitoring the extent of the vegetation area damaged and revegetated.
n)
monitoring the result of controlling and managing of environmental protection.
o)
monitoring the rate of erosion.
57 environmental management costs include, but are not limited to, costs related to activities described above. basically, these costs are costs in building environmental management infrastructure, costs arising from efforts to reduce and control the negative impact of mining activities, and other routine costs. accounting treatment 58 the costs of building environmental management infrastructure are capitalized as fixed assets and depreciated systematically based on the economic useful life.
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accounting for general mining
59 estimation of environmental management costs should be accrued, if the following conditions are met : a) b)
there is a strong indication that a liability, resulting from these activities, arises from these activities; and there is a reasonable basis to calculate the amount of such a liability.
60 cost estimation for environmental management as a result of exploration and development activities is accrued by debiting deferred environmental management costs and crediting liabilities (provision). this deferred costs will be amortized as commercial production begins and the amortization expense is recorded as production cost. 61 the estimated cost for environmental management which is incurred in connection with production activities is expensed as production cost by crediting the liability (provision) for environmental management.. 62 payment of environmental management liabilities during the current period is recorded as a reduction of the estimated liability for environmental management. 63 at balance sheet date, the amount of estimated liability for environmental management should be reevaluated to determine whether the amount of accrual is adequate. 64 if the amount of environmental management costs occurs in the current year is greater than the amount accrued, then the difference should be charged against production cost where such excess is incurred. presentation of financial statements 65 estimated liability for environmental management should be presented in the balance sheet at the accrued amount less actual expenditures. disclosure 66
the following information should be disclosed in the notes to financial statements :
a)
accounting policies on: (i) accounting treatment on expensing environmental management costs; (ii) amortization method for deferred environmental management costs; and (iii) depreciation method of environmental management infrastructure.
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b)
accounting for general mining
the activity in the estimated liability for environmental management in the current year showing : (i) (ii) (iii) (iv)
beginning balance; the provision made; actual expenditures; and ending balance.
c)
environmental management activity which have been conducted and are in progress
d)
contingent liabilities in connection with environmental management and other contingent liabilities as described in the financial accounting standards.
transition period 73
the changes arising from the application of this statement does not constitute a cumulative effect of a change in accounting policy. therefore in preparing financial statements adopting this new method, the previous period’s ending balance will be the beginning balance for the current period
68 the estimated remaining liability for environmental management relating to prior activities (the difference between estimated total liabilities and the actual expenditures) is expensed prospectively from the effective date of this statement through a systematic amortization over the remaining useful life of the mine and is presented after operating profit items. the amortization method and duration should be disclosed in the notes to the financial statements effective date 74
this statement becomes effective for financial statements covering periods beginning on or after january 1, 1995
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