11.2 Identifying
cash-generating units (CGUs) ..................................................... 3287
11.2.1
Markets for intermediate products ................................................ 3287
11.2.2
External users of processing assets ................................................ 3287
11.2.3 Shared
infrastructure ........................................................................ 3287
11.2.4
Fields or mines operated on a portfolio basis .............................. 3288
11.3 Basis of recoverable amount – value-in-use or fair value less costs
of disposal ............................................................................................................ 3289
11.4 Calculation
of VIU ............................................................................................. 3289
11.4.1
Consistency in cash flows and book values attributed to
the CGU ............................................................................................... 3289
11.4.1.A
Environmental provisions and similar
provisions and liabilities .............................................. 3290
11.4.2
Projections of cash flows ................................................................. 3290
11.4.2.A
Cash flows from mineral reserves and
resources and the appropriate discount rate ........... 3291
11.4.3
Commodity price assumptions ........................................................ 3291
11.4.4
Future capital expenditure .............................................................. 3293
11.4.5 Foreign
currency
cash flows ........................................................... 3294
11.5 Calculation of FVLCD ...................................................................................... 3294
11.5.1
Projections of cash flows ................................................................. 3295
11.5.2 Commodity
price
assumptions
.......................................................
3295
11.5.3
Future capital expenditure .............................................................. 3295
11.5.4 Foreign
currency
cash flows ........................................................... 3295
11.6 Low mine or field profitability near end of life ........................................... 3296
12 REVENUE RECOGNITION ........................................................................... 3297
12.1 Revenue in the development phase ................................................................3297
12.1.1
Incidental revenue ..............................................................................3297
12.1.2
Integral to development ................................................................... 3298
12.1.2.A
Future developments ................................................... 3300
12.2 Sale of product with delayed shipment ......................................................... 3302
12.3 Inventory
exchanges
with
the same counterparty ..................................... 3303
12.4 Overlift
and
underlift (oil and gas) .................................................................. 3303
12.4.1
Historical industry practice ............................................................. 3304
12.4.2 Accounting for imbalances in revenue under IFRS 15 ............... 3305
12.4.3
Consideration of cost of goods sold where revenue is
recognised in accordance with IFRS 15 ........................................ 3306
12.4.4 Facility
imbalances ............................................................................ 3307
12.5 Production sharing contracts/arrangements (PSCs) ................................... 3307
3184 Chapter 39
12.6 Forward-selling
contracts to finance development .................................... 3308
12.6.1
Accounting by the producer ............................................................ 3308
12.6.1.A
Sale of a mineral interest with a contract to
provide services ............................................................ 3309
12.6.1.B
Commodity contract – forward sale of future
production ....................................................................... 3310
12.6.2 Accounting by the investor ................................................................ 3311
12.7 Trading activities ................................................................................................. 3311
12.8 Embedded derivatives in commodity arrangements .................................... 3311
12.8.1
Provisionally priced sales contracts ................................................ 3312
12.9 Royalty income ................................................................................................... 3313
12.9.1
Royalty arrangements with collaborative partners ...................... 3314
12.9.2 Royalty
arrangements with customers ........................................... 3314
12.9.3
Royalty arrangements and the sale of non-financial items ........ 3314
12.10 Modifications to commodity-based contracts .............................................. 3315
12.11 Principal versus agent considerations in commodity-based
contracts ............................................................................................................... 3315
12.11.1 Relationships with joint arrangement partners ............................ 3315
12.11.2 Royalty
payments
...............................................................................
3316
12.12 Shipping ................................................................................................................ 3316
12.12.1 Identification of performance obligations ..................................... 3316
12.12.2 Satisfaction of performance obligations – control
assessment ............................................................................................ 3317
12.13 Gold bullion sales (mining only) ....................................................................... 3317
12.14 Repurchase agreements .................................................................................... 3317
12.15 Multi-period commodity-based sales contracts ........................................... 3318
12.15.1 Identify the contract .......................................................................... 3318
12.15.2 Identify the performance obligations ............................................. 3318
12.15.3 Determine the transaction price ...................................................... 3319
12.15.4 Allocate the transaction price .......................................................... 3319
12.15.4.A Variable consideration .................................................. 3319
12.15.4.B Fixed
consideration
......................................................
3320
12.15.5 Recognise revenue .............................
............................................... 3320
12.16 Take-or-pay contracts ...................................................................................... 3320
12.16.1 Volumes paid for, but not taken ...................................................... 3321
12.16.1.A Payments cannot be applied to future volumes ...... 3321
12.16.1.B Payments can be applied to future volumes ............ 3321
12.16.2 Breakage (customers’ unexercised rights) .................................... 3322
13 FINANCIAL INSTRUMENTS ......................................................................... 3323
13.1 Normal purchase and sales exemption ......................................................... 3323
Extractive
industries
3185
13.2 Embedded
derivatives
......................................................................................
3325
13.2.1
Foreign currency embedded derivatives ...................................... 3325
13.2.2 Provisionally
priced sales contracts ............................................... 3326
13.2.3 Long-term
supply contracts ............................................................ 3326
13.2.4 Development
of gas markets ............................................................ 3327
13.3 Volume flexibility in supply contracts ........................................................... 3329
13.4 Hedging sales of metal concentrate (mining) ............................................... 3329
14 INVENTORIES .............................................................................................. 3330
14.1 Recognition of work in progress .................................................................... 3330
14.2 Sale of by-products and joint products ..........................................................3333
14.2.1
By-products .........................................................................................3333
14.2.2 Joint
products ..................................................................................... 3334
14.3 Core inventories ................................................................................................. 3335
14.4 Carried
at
fair value ............................................................................................ 3337
14.5 Stockpiles of low grade ore (mining) ............................................................. 3338
14.6 Heap leaching (mining) ..................................................................................... 3340
15 PROPERTY, PLANT AND EQUIPMENT ........................................................ 3342
15.1 Major maintenance and turnarounds/renewals and reconditioning
costs ...................................................................................................................... 3342
15.2 Well workovers and recompletions (oil and gas) ........................................ 3344
15.3 Care
and
maintenance ...................................................................................... 3344
15.4 Unitisations and redeterminations ................................................................. 3345
15.4.1
Unitisations ......................................................................................... 3345
15.4.2 Redeterminations
..............................................................................
3348
15.4.2.A
Redeterminations as capital reimbursements ......... 3348
15.4.2.B ‘Make-up’
oil
..................................................................
3350
15.4.2.C Decommissioning
provisions
....................................... 3351
15.5 Stripping costs in the production phase of a surface mine (mining) ....... 3352
15.5.1
Scope of IFRIC 20 ............................................................................. 3352
15.5.2
Recognition criteria – stripping activity asset .............................. 3353
15.5.3 Initial
recognition
...............................................................................
3353
15.5.3.A
Allocating costs between inventory and the
stripping activity asset ................................................... 3353
15.5.3.B
Identifying the component of the ore body ............. 3357
15.5.4
Subsequent measurement ................................................................ 3359
15.5.5 Disclosures .......................................................................................... 3359
16 DEPRECIATION, DEPLETION AND AMORTISATION (DD&A) ................... 3361
16.1 Requirements under IAS 16 and IAS 38 ......................................................... 3361
16.1.1
Mineral reserves ................................................................................ 3362
3186 Chapter 39
16.1.2
Assets depreciated using the straight-line method ..................... 3362
16.1.3
Assets depreciated using the units of production method ........ 3363
16.1.3.A
Units of production formula ....................................... 3365
16.1.3.B Reserves
base.................................................................
3366
16.1.3.C
Unit of measure .............................................................. 3372
16.1.3.D
Joint and by-products ................................................... 3372
16.2 Block caving – depreciation, depletion and amortisation (mining) ............ 3373
17 LONG-TERM CONTRACTS AND LEASES .................................................... 3375
17.1 Embedded leases ................................................................................................ 3375
17.2 Take-or-pay contracts ....................................................................................... 3376
17.2.1
Make-up product and undertake .................................................... 3378
17.3 Impact of IFRS 16 ............................................................................................... 3379
17.3.1
Scope and scope exclusions ............................................................ 3380
17.3.1.A
Mineral rights ................................................................. 3380
17.3.1.B Land
easements
or rights of way ................................ 3381
17.3.2
Definition of a lease ........................................................................... 3381
17.3.3 Substitution
rights
..............................................................................
3382
17.3.4
Arrangements entered into by joint arrangements ..................... 3382
17.3.5
Identifying and separating lease and non-lease
components ........................................................................................ 3383
17.3.6
Identifying lease payments included in the measurement
of the lease liabilit
y ........................................................................... 3384
17.3.7
Allocating contract consideration .................................................. 3385
17.3.8
Interaction of leases with asset retirement obligations ............. 3385
18 TOLLING ARRANGEMENTS ........................................................................ 3386
19 TAXATION ................................................................................................... 3387
19.1 Excise duties, production taxes and severance taxes ................................ 3388
19.1.1
Production-based taxation .............................................................. 3388
19.1.2
Petroleum revenue tax (or resource rent tax) .............................. 3389
19.2 Grossing up of notional quantities withheld ................................................ 3390
20 EVENTS AFTER THE REPORTING PERIOD .................................................. 3391
20.1 Reserves proven after the reporting period .................................................. 3391
20.2 Business combinations – application of the acquisition method ............ 3392
20.3 Completion of E&E activity after the reporting period ............................. 3393
21 GLOSSARY ................................................................................................... 3394
Extractive
industries
3187
List of examples
Example 39.1:
Impairment losses on E&E assets ................................................... 3226
Example 39.2:
Unit of account – dry well ............................................................... 3230
Example 39.3:
Production sharing contract ............................................................ 3238
Example 39.4:
Carried interests (1) ........................................................................... 3245
Example 39.5:
Carried interests (2) ........................................................................... 3248
Example 39.6:
Definition of a business under IFRS 3 ........................................... 3266
Example 39.7:
Asset acquisitions with a conditional purchase price ................. 3273
Example 39.8:
Single product entity ......................................................................... 3288
Example 39.9:
Refurbishment costs – no legislative requirement ..................... 3342
International GAAP® 2019: Generally Accepted Accounting Practice under International Financial Reporting Standards Page 630