How to Report Non-Operating Mines and Plants in Cost Statements

Introduction

This case study examines the treatment of expenses related to non-operating mines and plants within a product company's Consolidated Cost Statement. It discusses the implications of integrating these costs with those of active operations and the suitable methods for reporting such expenses.

Non-Operating Mines/Plants Expenses

The focus is on expenses for non-operating mines or plants, particularly those temporarily closed due to activities mandated by the Directorate General of Mines Safety (DGMS). Required activities include:

Pumping
De-watering
Lighting

Mines may be closed for various reasons, including:

Permanent closure
Temporary closure for safety reasons
Temporary closure due to financial non-viability

Nature of Expenditures

Regardless of the closure status—permanent or temporary—the classification of these expenditures remains unchanged. They are considered non-operative fixed costs that cannot be incorporated into the production costs of functioning mines or plants. Closed mines do not contribute to production, sales, or revenue.

Separate Cost Statements

Companies with multiple mines or plants should create separate cost statements to evaluate profitability for each location. This enables a detailed comparison of efficiency and performance across different operations.
Integrating expenses for non-operating mines with the costs of operating mines in the Consolidated Cost Statement misrepresents the actual cost per unit. This merger inaccurately combines expenses across all mines and plants while only reflecting production quantities from operational entities, leading to misleading statistics.

Conclusion

In summary, there is no obligation to prepare cost statements for non-operating mines or plants. Additionally, these expenses must not be merged with the Consolidated Cost Statement of active mines and plants. Instead, they should be reported distinctly in the Reconciliation Statement between Costing and Financial Profit/(Loss) as a separate line item, categorized as unabsorbed fixed expenses due to non-operation of available capacity.