Mine Asset Impairment — CGU Assessment
Recognising an impairment of a mining operation's assets when recoverable amount falls below carrying value.
| Account Name | Type | Debit ($) | Credit ($) |
|---|---|---|---|
| Impairment Loss — Mine Assets | Expense (+) | 45,000,000.00 | - |
| Mine Development Assets (PPE) | Asset (-) | - | 35,000,000.00 |
| E&E Assets | Asset (-) | - | 5,000,000.00 |
| Goodwill (Mine CGU) | Asset (-) | - | 5,000,000.00 |
💡 Accountant's Note
Mine assets are tested for impairment under IAS 36 when impairment indicators arise — a decline in metal prices, increase in operating costs, reduction in reserve estimates, or changes in regulation. The recoverable amount (higher of value-in-use and fair value less costs to sell) is calculated for the mine as a Cash-Generating Unit (CGU). If the recoverable amount is below the carrying value of mine assets, an impairment is recognised.
Practitioner & Systems Framework
💻 ERP Architecture
Mine impairment testing is performed at the CGU level — typically the individual mine operation. The impairment model (DCF-based value-in-use or fair value less costs to sell based on market comparable transactions) is built in the mine's financial planning tool. Key inputs include: LOM production plan, long-term metal price assumptions, operating cost forecasts, capital expenditure plan, and the appropriate discount rate (WACC). The goodwill allocated to the mine CGU is tested first, then underlying assets pro-rata. Impairment reversal is permitted for mine assets (excluding goodwill) if conditions improve.
⚠️ Audit Flags
Auditors engage valuation specialists for material mining impairments. Key assumptions challenged: long-term metal price (compared to analyst consensus and futures), discount rate (WACC — mining companies carry significant risk premiums), production profile (reserve vs. resource, mining dilution), and operating cost escalation. For FVLCS-based tests, confirm comparable transaction multiples or discounted cash flow values used reflect current market conditions. For value-in-use models, test that the cash flows reflect IAS 36 requirements (Board-approved plans, no speculative enhancements). Review whether the goodwill allocation to mine CGUs is appropriate and has been consistently applied.
📄 Required Documentation
IAS 36 impairment model (DCF or comparable transaction approach), long-term metal price assumptions and source, discount rate (WACC) derivation, LOM production plan and reserve estimate, operating cost and capex forecasts, CGU definition and goodwill allocation, comparable transaction data (if FVLCS approach), sensitivity analysis to key assumptions, Board approval of LOM plan, and independent valuation (for material impairments).
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