Provisional Pricing Adjustment — Metal Price Movement
Adjusting mineral sales revenue for the change in metal price between shipment date and the quotation period.
| Account Name | Type | Debit ($) | Credit ($) |
|---|---|---|---|
| Trade Receivable (Price Adjustment) | Asset (+) | 850,000.00 | - |
| Revenue — Provisional Price Adjustment | Revenue (+) | - | 850,000.00 |
💡 Accountant's Note
Concentrate off-take agreements typically use 'quotational period' pricing — the final price is the average metal price in a specified period after shipment (commonly the month of smelter arrival). Between the provisional invoice (at shipment) and final settlement, the metal price may move significantly. The outstanding receivable is marked to fair value at each period-end, with the adjustment recognised as revenue or contra-revenue.
Practitioner & Systems Framework
💻 ERP Architecture
The provisional pricing adjustment is managed in the ERP's commodity pricing module or treasury system. At each reporting date, the outstanding 'provisionally priced' tonnes (shipments where the quotation period has not yet closed) are valued at the forward metal price for the relevant quotation month. The mark-to-market adjustment is posted as a revenue adjustment. Many mining companies separately disclose provisional pricing adjustments in management accounts to show the underlying business performance versus commodity price movements. The ERP must track each shipment by quotation period end date.
⚠️ Audit Flags
Auditors test the provisional pricing receivable balance against outstanding shipments and the metal forward price at the reporting date. Confirm the quotation period for each outstanding shipment matches the off-take contract. Test that the forward price used for mark-to-market is sourced from an observable market (LME forward prices for copper, gold fix, iron ore index). Assess IFRS 9 classification — the provisional pricing receivable contains an embedded derivative (commodity price link) that must be assessed under IFRS 9. If the receivable fails the SPPI test due to the commodity pricing link, it may be classified at FVTPL.
📄 Required Documentation
Off-take agreement (quotation period definition, pricing formula), outstanding shipment schedule (tonnes, provisional price, quotation period close date), LME or index forward price at reporting date, provisional pricing adjustment calculation, IFRS 9 embedded derivative assessment, and sensitivity analysis of provisional pricing receivable to metal price movements.
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