Costs that have been carried forward for a specific area of interest are to be amortised against revenue earned during the production phase.How is the amortisation of the costs to be calculated?
A) Any generally accepted amortisation method may be used except for the inverse-of-the-sum-of-the-years'-digits method.
B) The costs should be amortised in proportion to the expected revenue stream, so that a higher proportion of costs are matched against higher revenue streams, especially where they occur as a result of greater quality product in the early years of production.
C) The costs should be amortised straight-line over a period of not greater than 20 years.
D) The costs should be allocated over the life of the economically recoverable reserve in terms of production output or in terms of time in circumstances such as where there is a fixed period of tenure or the limiting factor is the length of the mining right.
E) None of the given answers.

Question

Quizplus · Accepted Answer

The most appropriate and widely used method to amortize costs carried forward for a specific mining area is to allocate them over the life of the economically recoverable reserve, either in terms of production output or time. This is because the primary limiting factor for mining operations is often the length of the mining right, and costs may continue to be incurred while production output is low or non-existent. Therefore, D is the best answer.

Costs That Have Been Carried Forward for a Specific Area