58 2022 ANNUAL REPORT 4. SIGNIFICANT ACCOUNTING POLICIES (cont.) 4.22 ACCOUNTING ESTIMATES AND JUDGEMENTS (cont.) Share based payment transactions The Group measures the cost of equity settled transactions with employees by reference to the fair value of the equity instruments at the date at which they are granted. The fair value is determined by using Monte Carlo modelling. This estimate also requires determination of the most appropriate inputs to the valuation model including the expected life of the equity instrument, volatility and dividend yield and making assumptions about them. The assumptions and models used for estimating fair value for share-based payment transactions are disclosed note 31. Production start date The Group assesses the stage of each mine under development/ construction to determine when a mine moves into the production phase, this being when the mine is substantially complete and ready for its intended use. The criteria used to assess the start date are determined based on the unique nature of each mine development/construction project, such as the complexity of the project and its location. The Group considers various relevant criteria to assess when the production phase is considered to have commenced. Some of the criteria used to identify the production start date include, but are not limited to: \ \ Level of capital expenditure incurred compared with the original construction cost estimate; \ \ Completion of a reasonable period of testing of the mine plant and equipment; \ \ Ability to produce metal in saleable form (within specifications); and \ \ Ability to sustain ongoing production of metal. When a mine development project moves into the production phase, the capitalisation of certain mine development costs ceases and costs are either regarded as forming part of the cost of inventory or expensed, except for costs that qualify for capitalisation relating to mining asset additions or improvements, underground mine development or mineable reserve development. It is also at this point that depreciation/amortisation commences. Capitalised exploration and evaluation assets The future recoverability of capitalised exploration and evaluation expenditure is dependent on a number of factors, including whether the Group decides to exploit the related lease itself or, if not, whether it successfully recovers the related exploration and evaluation asset through sale. Factors which could impact the future recoverability include the level of proved, probable and inferred mineral resources, future technological changes which could impact the cost of mining, future legal changes (including changes to environmental restoration obligations) and changes to commodity prices. To the extent that capitalised exploration and evaluation expenditure is determined not to be recoverable in the future, this will reduce profits and net assets in the period in which this determination is made. In addition, exploration and evaluation expenditure is capitalised if activities in the area of interest have not yet reached a stage which permits a reasonable assessment of the existence or otherwise of economically recoverable reserves. To the extent that it is determined in the future that this capitalised expenditure should be written off, this will reduce profits and net assets in the period in which this determination is made. 4.23 NEW AND REVISED STANDARDS AND INTERPRETATIONS Certain new accounting standards and interpretations have been published that are not effective for the 30 June 2022 reporting period. Except for the amendment to AASB 16 Property, Plant and Equipment, the Group has not elected to early adopt any other new standards. The other new standards do not have a material effect on the Group’s financial statements. Amendment to AASB 116 Property, Plant and Equipment The Group has elected to early adopt the amendment in AASB 116 Property, Plant and Equipment, effective for annual periods beginning on or after 1 January 2022. The amendment to AASB 116 prohibits an entity from deducting from the cost of an item of property, plant or equipment any proceeds received from selling items produced while the entity is preparing the asset for its intended use. The effect of adopting the amendment in AASB 116 is to recognise in profit or loss the proceeds from sales of gold ore produced by the Group’s King of the Hills operation while it is still in preproduction phase. Prior to the amendment pre-production sales proceeds were recognised as a credit against the cost of the asset. Effect of pre-production sales from King of the Hills CONSOLIDATED 30 June 2022 30 June 2021 $’000 $’000 Gold and silver sales (a) 3,205 - Costs of goods sold (b) (7,644) - Effect on gross profit (4,439) - (a) Pre-production gold ounces sold that were produced by King of the Hills processing plant amounted to 1,205 ounces for the year (30 June 2021: nil). This excludes ore fed into the plant sourced from the Great Western operation. (b) Costs of producing the gold ounces sold by King of the Hills during the pre-production phase were allocated to the cost of goods sold on the basis of the inventory value of the finished goods sold, along with an allocation of administrative overheads. Notes to the CONSOLIDATED FINANCIAL STATEMENTS for the year ended 30 June 2022 (cont.)
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