IFRIC 20
Published
Stripping Costs in the Production Phase of a Surface Mine
Addresses accounting for waste removal (stripping) costs incurred in surface mining during the production phase, splitting costs between inventory and a stripping activity asset based on the benefit obtained.
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Conceptual Framework Linkage
Why stripping costs need special accounting
Stripping (waste removal) costs in surface mining are incurred to IMPROVE ACCESS to the ore body – not just to extract inventory. This dual benefit means that treating ALL stripping costs as inventory cost (under IAS 2) would overstate current-period profit, while treating ALL of them as PPE (under IAS 16) would misrepresent the asset base. IFRIC 20 applies the Conceptual Framework's asset definition to split costs between the two purposes based on the BENEFIT GENERATED.
The key economic insight is that some stripping is DONE TO EXTRACT ORE (inventory benefit) while other stripping is DONE TO IMPROVE ACCESS (future benefit). These are two distinct economic events requiring two distinct accounting treatments.
The asset recognition principle
IFRIC 20 creates a NEW category of asset – the "stripping activity asset" – for the portion of stripping costs that generate FUTURE ECONOMIC BENEFITS by improving access to the ore body. This asset is recognised when, and only when, it is PROBABLE that FUTURE ECONOMIC BENEFITS will flow to the entity and the cost can be RELIABLY MEASURED – the standard Conceptual Framework recognition criteria applied to a specific mining scenario.
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Scope & Definitions
What IFRIC 20 covers
IFRIC 20 applies to STRIPPING COSTS incurred in the PRODUCTION PHASE of a SURFACE MINE. The interpretation does NOT apply to: (a) exploration and evaluation costs (covered by IFRS 6), (b) development costs incurred before the production phase, (c) costs incurred in the PRODUCTION PHASE of an UNDERGROUND mine, or (d) overburden removal costs that do not improve access to the ore body.
TYPICAL FACT PATTERNS
Coal surface mines removing overburden to access coal seams Iron ore surface operations stripping waste rock to reach ore bodies Open-pit copper/gold mines removing overburden to improve pit access Sand and gravel operations removing overburden to access aggregate deposits
Key definitions
Stripping activity asset
An asset recognised for the component of stripping costs that generate future economic benefits by improving access to the ore body, measured and depreciated as part of the related asset under IAS 16 or IAS 38.
Production phase
The phase of a mining operation when the entity has commenced the extraction of the mineral deposit, and the ore body is being actively worked – as distinct from the exploration, evaluation, or development phases.
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Splitting the Benefit – Inventory vs Improved Access
The two components of stripping costs
ComponentAccounting treatment
Inventory componentCosts incurred to EXTRACT ore that can be SOLD as inventory in the current period – treated as part of inventory cost under IAS 2
Access-improvement componentCosts incurred to IMPROVE ACCESS to the ore body, generating benefits over MULTIPLE periods – recognised as a stripping activity asset under IAS 16/IAS 38
THE CRITICAL DISTINCTION
Inventory stripping = waste removed to EXTRACT current-period ore; benefit is CONSUMED when the ore is sold Access-improvement stripping = waste removed to REACH ore that was PREVIOUSLY inaccessible; benefit extends BEYOND the current period
⚠️ The split is NOT based on the PHYSICAL LOCATION of the stripping – it is based on the ECONOMIC BENEFIT generated. Stripping that physically removes overburden from an active pit face but opens access to a PREVIOUSLY UNREACHABLE ore section generates an access-improvement benefit, not just inventory benefit.
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Recognition Criteria for the Stripping Activity Asset
When the asset can be recognised
A stripping activity asset can be recognised ONLY when BOTH of the following conditions are met: (1) it is PROBABLE that FUTURE ECONOMIC BENEFITS will flow to the entity from the improved access to the ore body, and (2) the cost can be RELIABLY MEASURED. These are the SAME recognition criteria that apply to any asset under the Conceptual Framework – IFRIC 20 simply applies them to a specific mining context.
PROBABLE FUTURE ECONOMIC BENEFITS
Improved access allows extraction of ore that would otherwise be INACCESSIBLE The ore body has SUFFICIENT RESERVES to justify the stripping cost The entity has the INTENTION and ABILITY to extract the accessible ore
When recognition is NOT permitted
If the improved access does NOT generate future economic benefits – for example, because the ore body is depleted or the mine is being closed – the stripping costs are treated ENTIRELY as inventory cost (if they relate to current production) or expensed immediately (if they do not relate to current production). No stripping activity asset is recognised.
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Initial Measurement
Cost model for the stripping activity asset
The stripping activity asset is initially measured at COST – the directly attributable cost of the stripping activity that generated the improved access. Directly attributable costs include: labour, equipment depreciation, fuel, explosives, and other directly attributable costs. Indirect costs are NOT included unless they are directly attributable to the stripping activity.
INITIAL MEASUREMENT
Stripping activity asset = Directly attributable costs of stripping that improves access to the ore body
Allocated to the specific component of the mine
The stripping activity asset is allocated to the SPECIFIC COMPONENT OF THE ORE BODY that the stripping makes accessible. This means that if stripping opens access to a specific bench or section of the pit, the stripping activity asset is allocated to that bench or section – not spread across the entire mine. This component-specific allocation ensures that depreciation matches the benefit period of each section.
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Subsequent Measurement & Amortisation
Depreciation over the expected benefit period
After initial recognition, the stripping activity asset is MEASURED at COST LESS ACCUMULATED DEPRECIATION AND IMPAIRMENT. The asset is depreciated on a SYSTEMATIC BASIS over the EXPECTED BENEFIT PERIOD – the period over which the improved access to the ore body is expected to generate economic benefits. This is typically the REMAINING LIFE of the ore body section that the stripping made accessible.
DEPRECIATION METHODS
Units-of-production method (most common for mining assets) – depreciation based on ore extracted from the accessed section Straight-line method – if production is uniform over the benefit period Depletion method – if the benefit is directly tied to the reserve quantity extracted
The stripping activity asset is DEPRECIATED, not amortised, because it is classified as part of property, plant and equipment under IAS 16 (if it enhances tangible mine infrastructure) or as an intangible asset under IAS 38 (if it enhances a mining right or similar intangible asset).
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Allocating Costs Between Inventory and the Asset
The allocation mechanics
For each period, the entity must ALLOCATE its total stripping costs between the INVENTORY COMPONENT and the STRIPPING ACTIVITY ASSET COMPONENT. This allocation is performed using a CONSISTENT METHODOLOGY that reflects the BENEFIT GENERATED by each component. The most common approach is to compare the stripping volume from the CURRENT PIT SECTION (inventory) with the stripping volume that IMPROVES ACCESS to new sections (asset).
ALLOCATION FORMULA
Inventory component = Total stripping costs × (Volume of current-pit stripping ÷ Total stripping volume)
Stripping activity asset = Total stripping costs - Inventory component
Stripping activity asset = Total stripping costs - Inventory component
The "identifiable assets" approach
An alternative (and increasingly common) approach is to identify SPECIFIC BENCHES OR SECTIONS where stripping improves access to PREVIOUSLY INACCESSIBLE ORE. Costs incurred to strip those specific sections are capitalised as stripping activity assets; costs incurred to strip within the ALREADY ACCESSIBLE sections are treated as inventory. This approach is more precise but requires detailed tracking of stripping activities by bench.
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Worked Example – Component-Based Recognition
Example: Coal mine stripping allocation
A coal surface mine incurs £2.5m of stripping costs in Year 1. Analysis shows that £1.5m of the stripping was within the CURRENT accessible pit (inventory benefit) and £1.0m was to remove overburden to access a PREVIOUSLY INACCESSIBLE bench (future benefit). The new bench contains 5m tonnes of coal. Annual production from the new bench is expected to be 500,000 tonnes over 10 years.
Step 1 – Allocate costs:
Inventory component = £1.5m
Stripping activity asset = £1.0m
Step 2 – Initial recognition:
£1.5m added to inventory cost (IAS 2)
£1.0m recognised as stripping activity asset (IAS 16)
Step 3 – Depreciation calculation:
Annual depreciation = £1.0m ÷ 10 years = £100,000/year (straight-line)
OR using units-of-production: £1.0m ÷ 5m tonnes = £0.20 per tonne
Step 4 – Year 1 production:
500,000 tonnes extracted
Depreciation charge = 500,000 × £0.20 = £100,000
Step 5 – Balance sheet:
Inventory: £1.5m stripping cost + mining costs
Stripping activity asset (net): £1.0m - £100,000 = £900,000
Inventory component = £1.5m
Stripping activity asset = £1.0m
Step 2 – Initial recognition:
£1.5m added to inventory cost (IAS 2)
£1.0m recognised as stripping activity asset (IAS 16)
Step 3 – Depreciation calculation:
Annual depreciation = £1.0m ÷ 10 years = £100,000/year (straight-line)
OR using units-of-production: £1.0m ÷ 5m tonnes = £0.20 per tonne
Step 4 – Year 1 production:
500,000 tonnes extracted
Depreciation charge = 500,000 × £0.20 = £100,000
Step 5 – Balance sheet:
Inventory: £1.5m stripping cost + mining costs
Stripping activity asset (net): £1.0m - £100,000 = £900,000
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Disclosure
What IFRIC 20 requires
The accounting policy for recognising stripping activity assets, including the method of allocating stripping costs between inventory and the asset The carrying amount of stripping activity assets at the beginning and end of the period The amount of stripping costs capitalised during the period The amount of depreciation charged during the period The method used to depreciate the stripping activity asset and the useful life applied
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Judgments & Estimates
Where judgement matters most
SIGNIFICANT JUDGEMENTS
Whether specific stripping activities improve access to previously inaccessible ore or merely extract current-period ore Which component of the ore body the stripping activity asset is allocated to Whether future economic benefits are probable given the mine plan and ore reserves
SIGNIFICANT ESTIMATES
Remaining life of the ore body section accessed by the stripping Stripping volumes that improve access vs volumes for current extraction Depreciation method and useful life for the stripping activity asset
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IFRIC 20 vs US GAAP
Comparison – IFRIC 20 vs ASC 932 (Extractive Activities – Mining)
FeatureIFRIC 20 (IFRS)US GAAP (ASC 932)
Stripping activity assetRecognised for access-improvement component; measured at cost less depreciationSimilar asset recognised for "stripping phase" costs that improve access
Allocation methodSplit between inventory and asset based on benefit generatedSimilar split required between inventory and asset
DepreciationOver the expected benefit period (typically mine life of the accessed component)Over the expected benefit period of the stripping phase asset
ScopeSurface mines only, production phase onlySimilar scope – production phase, surface and underground mines
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Statement Mapping
Where every IFRIC 20 event lands
EventStatement(s) affectedNotes
Stripping costs – inventory componentSOFP SOPLCapitalised as part of inventory under IAS 2; expensed as COGS when ore is sold
Stripping activity asset recognisedSOFPRecognised under IAS 16 or IAS 38 at cost
Depreciation of stripping activity assetSOPL SOFPSystematic depreciation over the benefit period
Impairment of stripping activity assetSOPL SOFPIAS 36 impairment testing applies to the stripping activity asset
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Related Standards
Cross-reference map
StandardConnection
IAS 2Governs the portion of stripping costs relating to inventory produced in the current period
IAS 16Governs classification and depreciation of the stripping activity asset where it enhances tangible mine infrastructure
IAS 38Governs classification and amortisation of the stripping activity asset where it enhances an intangible mining right
IAS 36Governs impairment testing of the stripping activity asset
Quick-reference glossary
Stripping activity asset
An asset recognised for the portion of stripping costs that generate future economic benefits by improving access to the ore body, depreciated over the expected benefit period.
Overburden
The layer of soil and rock covering the mineral deposit in a surface mine – the material removed through stripping to access the ore body.
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Glossary
Stripping activity asset
An asset recognised for the portion of stripping costs that generate future economic benefits by improving access to the ore body, depreciated over the expected benefit period.
Overburden
The layer of soil and rock covering the mineral deposit in a surface mine – the material removed through stripping to access the ore body.
Units-of-production depreciation
A depreciation method based on the quantity of ore extracted from the accessed section of the mine – the most common method for stripping activity assets.
Financial statement key
BS Balance sheet
IS Income statement
SE Statement of changes in equity
OCI Other comprehensive income
SCF Statement of cash flows
History & Development
Oct-2011
In October 2011 the International Accounting Standards Board issued IFRIC 20 Stripping Costs in the Production Phase of a Surface Mine. It was developed by the Interpretations Committee.
Mar-2018
Amendments to References to the Conceptual Framework in IFRS Standards
Minor consequential amendment to IFRIC 20