Financial Reporting · Ind AS 16 Property, Plant and Equipment

Stripping Costs in Mining (IFRIC 20) under Ind AS 16

Updated 5 October 2026 · Fact-checked

Stripping costs are the costs of removing waste rock in the production phase of a surface mine. Under Ind AS 16 Appendix B (IFRIC 20), the part that gives access to ore for future periods is recognised as a stripping activity asset if three conditions are met. The part that gives ore produced now goes to inventory under Ind AS 2.

Understand Stripping Costs in Mining (IFRIC 20)

A surface (open-pit) mine must remove waste rock to reach the ore. Before production starts, this is development work and is capitalised as part of the mine under Ind AS 16. Once the mine is producing, the miner keeps removing waste. The question is where that cost should go.

The answer in Ind AS 16 Appendix B depends on the benefit the waste removal creates. A single stripping activity can create two benefits at the same time: ore produced in this period (useful inventory) and improved access to ore to be mined in future periods. Each benefit is accounted for separately.

The part that gives inventory is a cost of producing that ore, so it follows Ind AS 2. The part that gives improved access is a stripping activity asset. It is recognised only when all three conditions are met: (a) it is probable that the future economic benefit (better access to ore) will flow to the entity; (b) the entity can identify the component of the ore body to which access has been improved; and (c) the costs of the stripping activity for that component can be measured reliably.

Often you cannot trace costs directly to inventory or to the asset. Then you allocate the production stripping cost using an allocation basis tied to a relevant production measure for the identified component. A common measure compares the actual strip ratio (waste to ore) in the period with the expected strip ratio for that component. The standard does not prescribe one formula. Applying the ratio comparison, waste removed up to the expected ratio belongs to inventory, and waste removed above it improves access and belongs to the asset, if the three conditions are met.

The stripping activity asset is not a separate class. It is treated as an addition to, or enhancement of, an existing asset, and is classified as tangible or intangible in line with that existing asset. It is depreciated or amortised over the expected useful life of the identified component, normally on a units-of-production basis, and tested for impairment under Ind AS 36.

Key rules to remember

Recognition test for stripping activity asset: Asset only if: (a) future benefit probable + (b) component of ore body identifiable + (c) cost measurable reliably; All three must be met. If any one fails, the cost goes to inventory under Ind AS 2.
Cost per unit of waste: Cost per tonne of waste = Total production stripping cost ÷ Actual waste removed; Use when cost is spread evenly over the waste removed in the period.
Waste attributable to inventory (ratio application): Inventory waste = Ore extracted in period × Expected waste-to-ore ratio of the component; Appendix B bases the allocation on the ratio of actual waste extracted to the expected waste for the actual ore produced, for the identified component. This formula applies that comparison: expected waste for the ore actually extracted is ore × expected ratio. The standard does not prescribe the formula. The expected ratio is for the identified component, not the whole mine.
Waste attributable to asset: Asset waste = Actual waste removed − Inventory waste (only if positive); If actual waste is at or below the expected waste for the ore produced, nothing is capitalised. Any excess is capitalised only if the three recognition criteria are met for the identified component. Otherwise it goes to inventory.
Stripping activity asset cost: Asset cost = Asset waste × Cost per tonne of waste (plus directly attributable costs and overheads, excluding incidental operations); Costs of incidental operations are excluded.
Depreciation of the asset: Depreciation = Carrying amount × Ore extracted in period ÷ Expected ore in the identified component; Units-of-production is normally used. Depreciate over the life of the component, not the whole mine, unless the component is the whole mine.

How to solve Stripping Costs in Mining (IFRIC 20) questions

Use this order for any question on production-phase stripping costs.

1Confirm the phase. If the mine is not yet producing, capitalise the stripping as part of the mine under Ind AS 16. Appendix B applies to the production phase.
2Identify the benefit. Separate the part that gives ore produced now (inventory) from the part that gives access to future ore (asset).
3Test the three asset conditions: future benefit probable, component identifiable, cost measurable. Write a one-line conclusion on each in the answer.
4If costs cannot be separated directly, find the allocation basis. Compare the actual waste removed with the expected waste for the actual ore produced, using the expected waste-to-ore ratio of the identified component.
5Compute: inventory waste = ore × expected ratio of the identified component. Waste above this is the excess that improves access. Capitalise it as an asset only if the three criteria are met. Otherwise it stays in inventory. Convert to rupees using cost per tonne of waste.
6Classify the asset as an addition to the related existing asset (tangible or intangible) and measure it at cost less depreciation and impairment.
7Compute depreciation on units of production over the expected ore of the component that benefits from the improved access. Charge it as a production cost for ore extracted.
8Check that inventory cost + asset cost equals total stripping cost incurred.

Quickest way: Ratio split in four lines

When to use it: Use when the question gives total stripping cost, actual waste, ore extracted and an expected waste-to-ore ratio for the identified component, and asks for the inventory and asset amounts.

Cost per tonne of waste = total cost ÷ actual waste.
Inventory waste = ore extracted × expected ratio of the identified component.
Asset waste = actual waste − inventory waste. If zero or negative, the asset is nil. A positive excess is capitalised only if the three recognition criteria are met.
Inventory ₹ = inventory waste × rate. Asset ₹ = asset waste × rate. Check that the two add up to the total cost, then state that the three recognition conditions are assumed met or met.

Common mistakes in Stripping Costs in Mining (IFRIC 20)

Capitalising all production-phase stripping cost as an asset.
Students link waste removal with 'development' and forget that part of it produces ore now.
Fix: Always split. Only the part that improves access to future ore can be an asset. The rest is inventory under Ind AS 2.
Capitalising the excess waste without testing the three conditions.
The ratio calculation feels like the whole answer.
Fix: State the three conditions first. If the component cannot be identified or the benefit is not probable, the excess also goes to inventory.
Using the whole-mine average ratio as the expected ratio.
Students use the first ratio they see in the question.
Fix: Use the expected ratio for the identified component of the ore body to which access is improved.
Depreciating the asset over the life of the mine.
Mine life is the more familiar period.
Fix: Depreciate over the expected life of the identified component, normally by units of production, unless the component is the whole mine.
Treating the stripping activity asset as a separate asset class with no link to existing assets.
The term 'asset' suggests a new item.
Fix: Present it as an addition to or enhancement of the existing asset, tangible or intangible according to that asset.
Capitalising a negative excess, or forgetting that inventory and asset amounts must add to total cost.
Mechanical subtraction without checking the result.
Fix: If actual waste is below the expected quantity, the asset is nil and all cost goes to inventory. Always reconcile the two parts to the total.

Worked examples

Example 1

Khanij Ltd runs an open-cast iron ore mine, now in the production phase. In the year, it incurred ₹2,60,00,000 on waste removal and removed 2,60,000 tonnes of waste while extracting 50,000 tonnes of ore. The expected waste-to-ore ratio for the identified component of the ore body is 4:1. Future benefit is probable and the cost is reliably measurable. Show the split between inventory and the stripping activity asset.

Show the solution

Phase and conditions: the mine is producing, so Ind AS 16 Appendix B applies. The component is identified, the benefit is probable and the cost is measurable, so all three recognition conditions are met.
Cost per tonne of waste = ₹2,60,00,000 ÷ 2,60,000 = ₹100.
Waste attributable to ore extracted (inventory) = 50,000 × 4 = 2,00,000 tonnes.
Excess waste giving improved access = 2,60,000 − 2,00,000 = 60,000 tonnes.
Inventory cost = 2,00,000 × ₹100 = ₹2,00,00,000. Stripping activity asset = 60,000 × ₹100 = ₹60,00,000.
Check: ₹2,00,00,000 + ₹60,00,000 = ₹2,60,00,000.

Answer: ₹2,00,00,000 is included in the cost of inventory under Ind AS 2. ₹60,00,000 is recognised as a stripping activity asset, added to the related mining asset.

Example 2

In the next year, Khanij Ltd incurs ₹1,80,00,000 on waste removal of 1,60,000 tonnes and extracts 50,000 tonnes of ore from the same component (expected ratio 4:1). The ₹60,00,000 stripping activity asset from the previous year is the carrying amount at the start of this year and is depreciated on units of production. At the start of this year, 3,00,000 tonnes of ore remain expected to be extracted from the identified component that benefits from the improved access (this is the expected ore of that component, and it is the depreciation base). 50,000 tonnes are extracted this year. Compute the treatment of the year's stripping cost and the depreciation.

Show the solution

Inventory waste = 50,000 × 4 = 2,00,000 tonnes.
Actual waste is 1,60,000 tonnes, which is below 2,00,000 tonnes. The excess is negative, so no new stripping activity asset is recognised.
The entire ₹1,80,00,000 is a cost of the ore produced, accounted for under Ind AS 2.
Depreciation of the existing asset = ₹60,00,000 × 50,000 ÷ 3,00,000 = ₹10,00,000. The base of 3,00,000 tonnes is the ore still expected from the identified component that benefits from the improved access.
The depreciation relates to the ore extracted, so it is included in the cost of the inventory produced under Ind AS 2. Cost of inventory produced from these two items = ₹1,80,00,000 + ₹10,00,000 = ₹1,90,00,000.
Closing carrying amount of the asset = ₹60,00,000 − ₹10,00,000 = ₹50,00,000.

Answer: No new asset is recognised, and ₹1,80,00,000 of stripping cost goes to inventory. Depreciation of ₹10,00,000 is included in the cost of inventory produced, and the asset's carrying amount is ₹50,00,000 before any impairment test under Ind AS 36.

Exam tips

Write the three recognition conditions every time. Marks are usually given for naming them and applying each to the facts.
Show the allocation as a small table-style list: cost per tonne, inventory waste, asset waste, then rupee amounts. Reconcile to total cost.
Say that the asset is an addition to an existing asset and is depreciated over the component's life, normally by units of production. Examiners often ask for this in theory parts.
In MCQs, check whether the stem says 'pre-production' or 'production phase'. Pre-production stripping is capitalised as part of the mine under Ind AS 16.
If actual waste is below the expected quantity, state clearly that no asset is recognised. Do not show a negative asset.

Practice questions from Ind AS 16 Property, Plant and Equipment

Stripping Costs in Mining (IFRIC 20): frequently asked questions

What is a stripping activity asset under Ind AS 16?

It is the asset recognised for production-phase waste removal that improves access to ore to be mined in future periods. It is recognised only if the benefit is probable, the ore component is identifiable and the cost is measurable. It is shown as an addition to an existing asset.

How do I split stripping costs between inventory and the asset?

If you cannot trace the costs directly, use the waste-to-ore ratio. Waste up to the expected ratio times the ore extracted is attributed to inventory. Waste above that is attributed to the asset if the three recognition conditions are met.

Is IFRIC 20 part of Ind AS 16?

Yes. The Indian equivalent of IFRIC 20 is Appendix B to Ind AS 16, titled Stripping Costs in the Production Phase of a Surface Mine. You may use both names in your answer, but base it on Ind AS 16.

Over what period is the stripping activity asset depreciated?

Over the expected useful life of the identified component of the ore body that becomes more accessible. Units of production is normally used. The life of the whole mine is used only if the component is effectively the whole mine.