Should stripping costs incurred in the production phase of a mining operation be capitalized or expensed?
Stripping costs should be accounted for according to the benefit received by the entity. Generally, stripping costs should be accounted for as variable production costs that should be included in the costs of the inventory produced (that is, extracted) during the period that the stripping costs are incurred. However, stripping costs should be capitalized if the stripping activity can be shown to represent a betterment to the mineral property. If stripping costs are capitalized, how should they be amortized? Capitalized stripping costs should be amortized in a rational and systematic manner over the reserves that directly benefit from the specific stripping activity. In the mining industry the unit of production method is generally the appropriate method. How should capitalized stripping costs be classified on the cash flow statement? Stripping costs that are capitalized should be classified as cash flows arising from investing activities in the cash flow statement. What disclosures sho
