Download 2004 Annual Report - Polymetal

Deferred developmentexpendituresIn general, mining costs arecharged to operations as in−curred. However, certain of theCompany’s deposits require sig−nificant capital expenditures, suchas tunneling in preparation of anew mining area. These expendi−tures are charged to cost of pro−duction in the proportion that theamount of ore extracted bears tothe amount estimated to be ac−cessed by the preparation work.Unamortized balances of capital−ized development expenditureare expensed when the area thatthey cover is depleted, or deemedto be depleted by management.Reclamation and mine closureThe Company accounts for rec−lamation, site restoration andclosure obligations based on theprovisions of SFAS No. 143 Ac−counting for Asset RetirementObligations. When the liability is ini−tially recorded, the Company capi−talizes the cost by increasing thecarrying amount of the relatedlong lived asset. Over time, the li−ability is accreted to its presentvalue each period, and capitalizedcost is amortized over the usefullife of the related asset.Revenue recognitionIn accordance with the guidanceoutlined in Staff Accounting Bul−letin No. 101 Revenue Recogni−tion in the Financial Statements,and applicable precious metals in−dustry−specific guidance outlinedin Accounting Research BulletinNo.43 Restatement and Revisionof Accounting Research Bulletins,the Company recognizes revenueupon the delivery of refined goldand silver to customers.Income taxesDeferred income tax assets and li−abilities are recognized for futuretax consequences attributable todifferences between the financialstatement carrying amounts ofexisting assets and liabilities andtheir respective tax bases, inaccordance with SFAS No. 109Accounting for Income Taxes.Deferred income tax assets andliabilities are measured usingenacted tax rates in the yearsin which these temporary differ−ences are expected to reverse.Valuation allowances are providedfor deferred income tax assetswhen management believes thatit is more likely than not that theassets will not be realized.Contri−butions to local authoritiesInfrastructure expenditure, whichis required to be contributed tothe local authorities as a conditionof mineral license agreements, ischarged to statement of opera−tions as incurred.Comprehensive incomeSFAS No. 130 “Reporting Com−prehensive Income”, requires dis−closure of all changes in equityduring a period except those re−sulting from investments by anddistributions to the Company’sshareholders.Pension obligationsThe Company pays mandatorycontributions to the state socialfunds, which are expensed as in−curred.Recently issued accountingstandardsIn November 2004, the FASB is−sued SFAS No. 151, “InventoryCosts−an amendment of ARB No.43, Chapter 4,” which clarifies theaccounting for abnormal amountsof idle facility expense, freight, han−dling costs and wasted materialas current period costs. It alsorequires that allocations of fixedproduction overheads to thecosts of conversion be based onthe normal capacity of the produc−tion facilities. The Statement ap−plies to inventory costs incurredin the first fiscal year beginning af−ter June 15, 2005. Managementbelieves that the adoption of SFASNo. 151 will not have a material im−pact on the Company’s reportedfinancial position, net earnings orcash flows.In December 2004, the FASBissued SFAS No. 153, “Exchang−es of Non−monetary Assets anamendment of APB No. 29”. ThisStatement amends APB OpinionNo. 29, “Accounting for Non−mon−etary Transactions” to eliminatethe exception for non−monetaryexchanges of similar productiveassets and replaces it with a gen−eral exception for exchanges ofnon−monetary assets that do nothave commercial substance. ThisStatement is effective for fiscalyears beginning after June 15,2005. Management believes thatthe adoption of SFAS No. 153 willnot have a material impact on theCompany’s reported financial posi−tion, net earnings or cash flows.Appendix #1: Consolidated financial statements57