Write a report based on a mining company. Please refer to the introduction regarding the basis of this report.
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Report Writing
1. Introduction
This report provides information obtained through the analysis of Asia Pacific Resources Ltd's application regarding the extension for mining lease which will expire in July 2013. Asia Pacific Resources Limited is a mining company operating in Wainivesi and seeking an extension to the mining lease for it's operations. It will pay particular attention on :
1.1 the major accounting assumption that the managing director Matthew Huggan is most concerned about and consider the two reasons for his concern.
1.2 the definition of the accounting entity assumption and discuss it's importance for the company.
1.3 the definition of an asset in order to evaluate the characteristics of exploration costs for mining companies as well as provide the reasons for the obtained results.
1.4 the legal ownership of the land that are linked to the definition of an asset under the Conceptual Framework.
1.5 the major benefits of operating the mine that are related to the provision of income for the investors, the Government as well as the landowners.
1.6 The liabilty of the mining company that are related to the costs incurred in regards to the damages to the environment as a result of mining.
2. Analysis
An analysis of the data will be placed under the following sub-headings
2.1 The major Accounting Assumption
2.2 The definition of the Accounting Entity Assumption
2.3 The evaluation of Exploration Costs
2.4 The legal Ownership of the Land
2.5 Provision of Income to :
(a) the Investors
(b) the Government
(c) the Landowners
2.6 the Liability of the Mining Company
2.1 The major Accounting Assumption
There are several accounting assumptions but in this case of " Wainivesi seeks mining lease extension" is the Going concern. The managing director Matthew Huggan is most concerned about the Going Concern assumption which allows the users of the financial statements to assume that the company will continue to operate in the future( ). In other words, it is assumed that the company will continue its operating activities in the future.
There are several reasons that is stated in the article which resulted in Mr Huggan's concern about the Going concern assumption. Firstly, Mr Huggan stated that " We are seeking to have secure titile over the mine into the future and provide confidence to our investors that business will continue as usual following the July expiry "(Lal, 2013). In other words, the lease extension will enable the investors to continue to invest shares into the Company.
In addition, the possibility of job losses is another reason to Mr Huggan's concern. Mr Huggan stated that " It will leave a big hole in the budgets of a lot of people, if the mining lease is not extended and the company is forced to retrench its workers"(Lal, 2013). The company will be in a position to start laying off its workers if the lease is not extended.
2.2 The definition of accounting entity assumption
Many entities uses the definition of accounting assumptions in a bid to maintain a record of a company's assets . One of the accounting assumption that is used by Asia Pacific Resources Ltd is the entity assumption. It assumes that the company need to have a record of assets that are to be kept separate from a record of the shareholder's personal assets.
There are several reasons that is required by the entity assumption in regards to maintaining a separate record of assets for the mining company and the shareholder. Firstly, the assumption of accounting entity eliminates conflict of interest. The company and the shareholder are assumed to be a separate entity in which each entity is responsible to pay the short term debts incurred by both entities in order to eliminate conflict of interest (Robbins, 1987). For example, the company could use the cash that is available to pay the mining workers and the shareholder could use the personal finance to pay the fuel for the personal vehicle. Moreover, it enables both entities to use the cash assets that are available in order to purchase the needed items for each entity. For example, the cash asset maintained by the company can be used to purchase a drilling equipment and the personal cash of the shareholder can be used to buy personal assets for the shareholder (Robbins, 1987).
2.3 Exploration Costs.
There are several criteria that are used to test the existence of an asset in order to evaluate exploration costs for mining companies (Hogget.et.al, 2015).