Recognition and Treatment of Mineral Properties and Equipment
The main purpose of the report is to highlight various items and their recognition and treatment from the financial reports of Alacer Gold Corp. Various items from the financial report those will be taken into consideration for the purpose of analyses are property, plant and equipment, leases, revenues, intangible assets and provisions. Alacer Gold Corp is the intermediate gold mining entity and is engaged in exploration and development of the mineral deposits in Turkey and in mining activities. The entity is further engaged in exploration, production and acquisition of gold in Turkey. The company is the low cost producer for gold with 80% interest in Copper Gold Mine that is operated by Anagold Madencilik Sanayi ve Ticaret and balance 20% is owned by Lidya Madencilik Sanayi ve Ticaret. Different segments of the entity include Turkish Corporate, business segments and other segments (Alacergold.com 2018).
One item listed under the non-current assets of the company is mineral properties and equipment. The amount for the said item has been increased from $ 435,358 thousands to $ 738,202 thousands over the time of 31st December 2016 to 31st December 2017. This item is recorded at historical cost that includes the evaluation, development and acquisition of the mining properties and is recorded in the financial statement at historical cost reduced by depletion. Historical cost further includes the expenses directly attributable to the acquisition and the subsequent expenses for evaluating and developing the mineral resources and reserves. Further, at the time of acquisition under the stage of exploration estimated fair value for acquiring the exploration license is determined. Fair value of exploration license is recognized as exploration asset (Christensen and Nikolaev 2013).
On the contrary, instead of historical valuation the assets could have been valued on market based value or fair value. Fair value will enable the company to estimate the value at which the asset can be sold at the market. Under fair value approach the fair is the amount at which the asset can be purchased or sold in the open market in present circumstance (Bamber and McMeeking 2016).
Intangible asset is the asset that is non-physical by nature. For instance, brand recognition, goodwill and intellectual properties like trademark, copyrights and patents are considered as intangible asset. Intangible assets are segregated as definite or indefinite. For instance, brand name will be considered as indefinite as the brand name will continue to exist as long as the company will exist. Conversely, patents will be considered as definite as the patent is acquired for certain period of time. Intangible assets can be acquired or created. However, the acquired intangible assets are only recognized under the financial reports of the company (Zambon 2017). Intangible assets can be value using various approaches like cost approach, market approach and income approach. Under cost approach 2 general considerations are used – (i) historical cost for creating the asset and (ii) estimated time and cost required for creating equivalent asset or replacing the asset. Market based approach applies the market based indications for value. It can involve the transactions like buying, selling, licensing, franchising the asset. These activities are generally bundled with the other deals. Under the income approach future projected economic benefits or the discounted cash flows are determined for the associated risks and time with the present value (Gipper, Lombardi and Skinner 2013). However, for the year ended 31st December 2017 the company did not recognized any intangible assets in its financial reports.
Valuation of Assets Based on Fair Value
Item listed under the Provisions, contingent assets and contingent liabilities of the company is provision for asset retirement obligation. The amount for the said item has been increased from $ 27,316 thousands to $ 37,938 thousands over the time of 31st December 2016 to 31st December 2017. The company recognizes the provisions when it has present constructive or legal obligation owing to the past events and it is likely that the resource outflow will take place for settling the obligation and the amount of obligation can be estimated reliably (Henderson et al. 2015). However, the company does not recognize the losses for future operations. Obligation for asset retirement obligation for incurring the reclamation and decommissioning costs are generally incurred when any environmental disturbance takes place through evaluation, exploration, ongoing production or development. However, the costs are estimated based on the formal plan for closure and they are reviewed periodically. Further, the company has the contingent assets with regard to the legal claims generated under ordinary course of the business. The entity feels that the claims will not have any material impact where the liability will have to be recorded under the financial statement (Malsch 2013).
Contingencies are appeared at near of the ending section of balance sheet for attracting the attention of the reader regarding the disclosures included in notes to financial statement. Contingencies shall be included in the financial reports for following the accounting rules that is full disclosures and materiality principle. This principle requires the entity to disclose all the information that may have an impact on the decision making procedures of the users (Holder et al. 2013). However, if it is taken in different way, it may argued that the contingencies shall not be included in the financial statements as the contingencies may or may not take place in the future time periods. Therefore, including the contingencies will generate a scope for manipulation in the financial statements.
The entity has the option of entering into leasing arrangements those are leasing arrangements in substance. Whether the arrangement is leasing arrangement or not that is determined at the date of inception. Further, it determines whether the arrangement conveys the right of using the asset or whether it is dependent on usage of particular asset. Further, the company recognizes the lease as finance leases when considerably all the rewards and risk associated with the asset’s ownership are transferred (Barone, Birt and Moya 2014). Rest all the leases are segregated as operating leases. Payments related to the operating leases are recorded as operating costs under the consolidated statement of profit and loss over the term of lease based on the straight line method. However, at present the entity does not have any operating leases as well as finance leases.
The amount of revenue has been increased from $ 141,994 thousands to $ 209,087 thousands over the time of 31st December 2016 to 31st December 2017. One item listed under the revenue of the company is revenue from metal sales. Revenue generated from metal sales is recognized when the specific conditions are satisfied. The said conditions are – (i) ownership related considerable rewards and risks are transferred (ii) continuing involvement of the management related to ownership as well as effective control for the goods both are not retained (iii) revenue amount can be reliably measured (iv) transaction related economic benefits will be inflow for the company (Srivastava 2014).
From the above analysis and interpretation it is concluded that the financial reports of Alacer Gold Corp is prepared as per the requirements of IFRS (International Financial Reporting Standards) issued by IASB (International Accounting Standards Board). Further, the statements are prepared on the basis of historical cost. The company recognizes its non-current assets like plant, property and equipment on the basis of historical cost reduced by depletion. At present the company does not have any intangible asset and leased items in its financial statements. The company recognizes the provisions when it has present constructive or legal obligation owing to the past events and the amount of obligation can be estimated reliably.
References
Alacergold.com., 2018. Alacer Gold | [online] Available at: https://alacergold.com/ [Accessed 26 Sep. 2018].
Bamber, M. and McMeeking, K., 2016. An examination of international accounting standard-setting due process and the implications for legitimacy. The British Accounting Review, 48(1), pp.59-73.
Barone, E., Birt, J. and Moya, S., 2014. Lease accounting: A review of recent literature. Accounting in Europe, 11(1), pp.35-54.
Christensen, H.B. and Nikolaev, V.V., 2013. Does fair value accounting for non-financial assets pass the market test?. Review of Accounting Studies, 18(3), pp.734-775.
Gipper, B., Lombardi, B.J. and Skinner, D.J., 2013. The politics of accounting standard-setting: A review of empirical research. Australian Journal of Management, 38(3), pp.523-551.
Henderson, S., Peirson, G., Herbohn, K. and Howieson, B., 2015. Issues in financial accounting. Pearson Higher Education AU.
Holder, A.D., Karim, K.E., Lin, K.J. and Woods, M., 2013. A content analysis of the comment letters to the FASB and IASB: Accounting for contingencies. Advances in Accounting, 29(1), pp.134-153.
Malsch, B., 2013. Politicizing the expertise of the accounting industry in the realm of corporate social responsibility. Accounting, Organizations and Society, 38(2), pp.149-168.
Srivastava, A., 2014. Selling-price estimates in revenue recognition and the usefulness of financial statements. Review of Accounting Studies, 19(2), pp.661-697.
Zambon, S., 2017. Intangibles and intellectual capital: an overview of the reporting issues and some measurement models. In The economic importance of intangible assets (pp. 165-196). Routledge.
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