I've been trying to find authoritative accounting literature to help me figure out what the accounting treatment would be if there is a natural resource asset that a company holds, and after the company has already fully depleted the resource on the books the company subsequently discovers that there is a significant amount of resources available that hadn't been anticipated. For example, say a company buys a mining site for X dollars thinking that only Y amount of coal was in the site. After the Y amount has been fully depleted (on the books and in reality) the company discovers that there are actually Z more amounts of coal available. Would the company continue to report the natural resource at a $0 book value, or would the company be able to increase the value of the asset upon discovery of the newly available resources?
Any answer is appreciated, but a link to authoritative literature would be a plus. Thanks!
2006-07-09 14:52:40 · 3 answers · asked by C. John 2 in Business & Finance ➔ Other - Business & Finance
better check the correct accounting treatment under IAS and IFRS.but in my opinion, if no additional costs were incurred in discovering the additional resource there is no need to place a value on the books for the additional resources, just like in depreciation, just because an asset is fully depreciated doesn't mean it can no longer be used. based on your example i find it to be a very unlikely scenario since engineers should always re-validate the amount of extractable output from a mining resource since their findings are based on estimates. i think it was an oversight on the part of the engineers not to check their estimates,before complete extraction there should be re-validation so that the depletion per unit could be changed.
2006-07-09 20:05:02 · answer #1 · answered by marsheness 1 · 5⤊ 1⤋
I don't have any references. I would think it is treated as any asset windfall would be. They could just add it to inventory as though it is newly discovered. Like drilling for oil without any expenses. Tax treatment is something to ask the IRS. The additional inventory/asset will probably raise the company's evaluations for stock purposes, which would create additional cash inflow from stock sales and trades.
I know, pretty much a useless answer, but I get 2 points!
2006-07-09 14:59:58 · answer #2 · answered by auntiegrav 6 · 0⤊ 0⤋
I would be inclined to use a new journal entry for the new-found deposits. Just my opinion.
2006-07-09 14:55:52 · answer #3 · answered by ps2754 5 · 0⤊ 0⤋