Amortisation of Mine Purchased


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Here below the case study.

We are entering into some contracts as explained below for the purchase of a MINE FIELD which is again sold to another party. We need your advice on how to account these transactions in our (B-minerals) books of account and date & value to be recorded in our books.

Mine Purchase & Sale Contracts:

Contract -1:
Parties to the Contract: Company “A-mines” & Company “B-minerals”
Subject: A-mines sell the MINE FIELD to B-minerals
Consideration: Total Consideration $10million paid as follows
a. $3million Cash payment paid in 4 installments
b. $7million paid in installments calculated (2% of NSR) according to the quarterly actual production from the mine.

Contract -2:
Parties to the Contract: Company “B-minerals” & Company “C-operators”
Subject: B-minerals sell the MINE FIELD to C-operators
Consideration: Consideration paid as follows
a. $3million Cash payment paid in 4 installments
b. $6million worth of Shares in Company “C-operators”
c. 2% of NSR calculated according to the quarterly actual production from the mine till the life of the mine (or indefinite).


Contract -3:
Parties to the Contract: Company “B-minerals” & “D-agent”
Subject: D-agent acting as agent for the purchase & sale of the MINE FIELD
Consideration: Consideration paid as follows
a. $4million worth of Shares in Company “C-operators”


Assignment Agreement -1: Assigning C-operators to pay the cash $3million to A-mines directly.

Assignment Agreement -2: Assigning C-operators to pay the 2% NSR up to $7million to A-mines directly.

Our doubts roles around the following points.

1. Our company here is “B-Minerals”
2. What value of purchase of the mine should we book - $3m or $10m? For how many years this value has to be amortized and on what basis?
3. What value of sale of the mine should we book - $3m or $9m or More? For how many years this value to be recognized for revenue and on what basis?
4. How to book the agency charges paid in Shares of “C-operators”? For how many years this value has to be amortized and on what basis?
5. The cash payment of $3m is directly assigned from C-operators to A-mines. Can we make entry for whole $3m debiting A-mines and crediting C-operators immediately once this assignment agreement is signed?
6. The royalty payment of 2%NSR is directly assigned from C-operators to A-mines, until it reaches $7m. Can we make entry for whole $7m debiting A-mines and crediting C-operators immediately once this assignment agreement is signed?
7. What are the other Accounting entries required for these transactions.
 
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