Dears
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.
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.