The Institute of Chartered Accountants of India (ICAI) notified the Exposure Draft of Valuation Standard 304 Valuation of Assets in Extractive Industries.
The Exposure Draft of the ICAI Valuation Standard includes paragraphs set in bold type and plain type, which have equal authority. Paragraphs in bold type indicate the main principles. (This Exposure Draft of the ICAI Valuation Standard should be read in the context of its Introduction and Framework for the preparation of Valuation Report in accordance with ICAI Valuation Standards).
The objective of this Standard is to prescribe specific guidelines and principles which are applicable to the valuation of assets (including rights or interests) in the Extractive Industries that are not dealt specifically in another Standard.
The Standard is not applicable and does not cover the assets downstream (or assets involved in the distribution of products to retailers or fabricators) from the metal refineries or mineral processing plants or petroleum refineries and natural gas processing plants.
The importance of valuing assets of Extractive Industries arises from the fact that the reported and intangible form of the said assets may not reflect the true value of the said assets. Unlike valuation of many other industries, valuation of assets in extractive industry is based on depleting mineral assets, the knowledge of which is imperfect prior to the commencement of extraction. It is therefore essential that the valuation incorporates the risks associated with each stage of mining. Certain areas where valuation of assets of Extractive Industries are required are as below namely Accounting and financial reporting, Transaction purposes, Financing, Bankruptcy / restructuring, Litigation, Impairment testing analysis, Mergers and Acquisitions, Initial Public Offerings, Grant or acquisition of Rights, and Tax computations
The principles enunciated in this Standard shall be applied in conjunction with the principles prescribed and contained in the Framework for the Preparation of Valuation Report in accordance with ICAI Valuation Standards.
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