Income For Investors Government And Landowners

Published Date: 02 Nov 2017

INTRODUCTION

This report provides information About Asia Pacific Resource Limited obtained from an article published on 5th March, 2013 in Fiji sun. It is regarding the "lease extension" of the company which will expire in July 2013. Asia pacific resource limited is a mining company operating at Wainivesi mine seeking an extension to the mining lease for its operations.

The company has to make consideration for various places where needed. This particular report is most likely to pay particular attention to the underlying accounting assumption that managing director Mathew Huggan is most concerned about as stated in the article, how each party that is investors, government and landowners would earn income from the Wainivesi mine, evaluation of exploration cost, land and in regards to the damages to the environment as a result of mining using the modern asset and liability recognisable requirements.

The company was more confident and the performance of the entity was really excellent but due to some minor issues such as the expiry of the land leases, now this particular report will commence on what the company and government can do to overcome this problem and recommendations that would improve the extension to Asia Pacific Resource Limited mining lease. The major limitation is of the iTaukei Lands Trust Board (TLTB) for which the company has paid rent for 50 years in advance so there is no threat to the company using the land for that particular period. This report will also explain how the closure of the company affects the investors, government and landowners.

ANALYSIS

As accounting is the process of collecting information usually from source documents which has occurred from transactions, recording it and analysing the data to prepare financial statements and preparing a business report for users. Thus, in the process of analysing of data and preparing or writing a business report is very important. In this report writing the same procedure would be followed as data will be analysed under sub-headings and business report, would be written for Asia Pacific Resource Limited. The analysis of the data will be placed under the following sub-headings:

Accounting assumptions.

Income for investors, government and landowners.

Exploration cost and assets.

Land, asset of Asia Pacific Resource Ltd or landowners?

Liability to company.

ACCOUNTING ASSUMPTIONS

There are various "accounting assumptions", but in this case of "Wainivesi seeks mining lease extension" is based on "going concern". The managing director Mathew is most concerned about Going Concern assumption which states accounting guideline which allows the readers of financial statements to assume that the entity will continue to operate in the future. In other words it is assumed that the entity will not be wound up in the near future but will continue its activities, and so the liquidation values (prices in a forced sale) of the entity’s assets are not generally reported.

There are many reasons in the article from which we came to know why Mr Mathew Huggan is underlying the going concern assumption, as stated by him "we are seeking to have secure title over the mine into the future and provide confidence to our investors that business will continue as usual following the July expiry". From which we came to know that Mr Mathew Huggan is much confidence that the entity will be running smoothly back to normal as quoted. In the article Mr Huggan quotes "nobody can come on our TLTB lease for another 42 years".

After reading this article we come to know that a lease was issued for 50 years and it is only 8 years now and the company still has 42 years lease for which rent has been paid in advance. Another reason that Mr Huggan is much concerned is about the workers at the mine is worried about their jobs. "It will leave a big hole in the budgets of a lot of people, if the mining lease is not extended and the company is forced to retrench its workers".

INCOME FOR INVESTORS, GOVERNMENT AND LANDOWNERS

"For the investors, the government and the landowners, the only way in which to earn income from Wainivesi is by operating the mine." Asia Pacific Resource Limited that invested in Fiji’s mining sector is a primary sector that extracts resources from nature. Likewise foreign companies investing in Wainivesi will provide income for investors, government and the landowners. Through the research we have come to know that Wainivesi used to be a very poor and remote area until the exploration of the area by Asia Pacific Resources Limited.

For the government and the economy, the project would provide a greater benefit as its investments are worth more than $80 million recurred over a decade. "Mr Huggan said at stake also for the government is millions of dollars of direct investment from other companies". It states that the investment by Asia Pacific Resources Limited will make a profit for Fiji. For the government, Wainivesi mines operation generates more than $70 million in taxes. "These taxes will be used for roads and education and so many other things that government provides. Through this we learn that the government would earn taxes and the investors would earn profits. "Mr Huggan said landowners are also patiently waiting for their royalty from the mine". "This is expected to be more than $12 million. Without the mining lease extension, the landowners will have no royalties and no way out of poverty". Thus from the article we came to know that landowners earn rent and loyalties.

Summary of How Income is earned by Each Party

Investors Profit

Government Taxes

Landowner Rent/Royalties

EXPLORATION COST AND ASSET

Asia pacific resource limited has already incurred some cost before actually caring out its normal procedure which is referred or defined as the exploration costs. The cost an oil or gas company incurs while searching for oil or gas to drill. Exploration cost is those costs that include the cost of researching appropriate places to drill and the cost of actual drilling. There is basically no guarantee at all that there will be a return on the investment of exploration cost because in such cases there are less guarantee that the entity will find oil or natural gas in it. Exploration cost can also be quite expensive.

There are things that should be considered whether it can be recognised as an asset or not.

ASSET TEST

Controlled by an entity

Past transaction or event

Future economic benefits are expected to flow

Recognisable

Probable for economic benefits (>50%)

Reliably measured

Not an asset, why not?

It does not meet recognition requirement, thus not an asset. Because it has no guarantee that there will be a return on the investment of exploration cost, which is simply the third requirement (future economic benefits are expected to flow).

LAND, ASSET OF ASIA PACIFIC RESOURCE LTD OR LANDOWNER?

Is the land of Wainivesi mine an asset of Asia Pacific Resource Limited or the landowners? As we have known that assets are resources controlled by the entity as a result of past transactions or events from which future economic benefits are expected to flow to the entity. Assets are bought to increase the value of an entity or benefit the entity’s operations.

"At Wainivesi, the company holds the TLTB lease on which the rent has been paid 50 years in advance, so there is no threat to the company using the land for that period."

Test for assets for either Asia Pacific Resource Limited or landowners.

ASSET

LANDOWNERS ASIA PACIFIC RESOURCE LTD

Controlled by entity

Past transaction or events

Future economic benefits expected

to flow recognisable

Probable for economic benefit (>50%)

Reliably measured

Thus, through the evaluation we have come to know that the land on which Wainivesi mine sits is an asset to Asia Pacific Resource Limited because it meets all the requirements whereas for landowners it can be recognised as an asset because it does not meet the recognition requirement.

LIABILITY TO COMPANY

Whether the company would have a liability in regards to the damages to the environment as a result of mining. The Wainivesi mining both has positive and negative effects. Positive in a way that due to mining it brings foreign exchange, economic growth, provides employment, gives taxes to the government and helps in development for the country.

On the other hand it is negative in a way that it is damaging the natural resources that are created by nature and also causing pollution as well. But this question comes that shall this be regarded as a liability or not. As we know liability is a present obligation of an entity arising from past transactions or events, the settlement of which is expected the result in the outflow of resources from the entity. Liabilities are settled over time through the transfer of economic benefits including money, goods or services.

DAMAGES TO THE ENVIRONMENT AS A RESULT OF MINING

Test for Liabilities

Requirements Test

Present obligations

Past transactions or events

Outflow of resources

Recognisable

Possible for economic benefit

Reliably measured

As it meets all requirements of being a liability, thus damage to environment as a result of mining would be recognised as a liability to Asia Pacific Resource Limited.

CONCLUSION

Asia Pacific Resource Limited uses modern technologies and methods to keep costs very low compared with those adopted by conventional mining companies. The Wainivesi mine is currently in the process seeking an extension to the mining lease. Their application is currently in process but the Director of Mineral Resources, Malakai Finau, said he could not confirm how long the process will take.

"For the investors, the Government and the landowners the only way in which to earn income from Wainivesi is by operating the mine", thus the Government and the iTaukei Lands Trust Board (TLTB) should come up with a reliable solution in regards to continuation of the company. The Government must extend the lease if they are interested in generating income for the economy from Wainivesi mine and not worsen their balance of payments.

This report of Asia Pacific Resource Limited (APR) is a very well structured, detailed report, and a greater depth of understanding and evaluation would only have occurred with utilisation of other resources and the records of the entities past year performances. The income which is provided to the government in the form of taxes would pay good wages to the landowners and they must be informed of the rent and loyalties. From the article, it was appreciated that in the company’s current situation, it has possible future endurance when we came to know that the company is confident in securing the title over the Wainivesi mine.