- 5 Marks
Question
ACM Mining Ltd has commenced mining operations in Ghana. It procured heavy-duty machinery and equipment for use in its operations.
Required:
Advise ACM Mining Ltd on what constitutes the cost of an asset at the commencement of commercial production in respect of mineral operations. (5 marks)
Answer
The following are treated as the cost of a depreciable asset for which capital allowances are granted with respect to a separate mineral operation:
- Cost of the Mineral Right:
- The acquisition cost of the mineral right is included as part of the asset’s cost.
- Reconnaissance and Prospecting Expenditure:
- The balance in the pool of reconnaissance and prospecting expenditure at the time production of a commercial find commences is treated as part of the asset’s cost.
- Expenditure on Waste Removal, Overburden Stripping, and Shaft Sinking:
- Costs incurred in respect of the mineral operation for activities such as waste removal, overburden stripping, shaft sinking, and similar activities that are prescribed by regulation are included. These costs are capitalized if they improve access to ore bodies to be mined in the future. If these costs are incurred during production for the extraction of ore in the current period, they are expensed.
- Bonus Payments:
- Bonus payments made in respect of the grant of the mineral right are also included as part of the asset’s cost.
- Tags: Capital Allowance, Cost of Asset, Mineral Operations, Mining, Taxation
- Level: Level 3
- Topic: Minerals and mining
- Series: NOV 2023
- Uploader: Theophilus