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attributable to the volume of coal produced were booked as
reductions to the account and were “expensed” as production
costs through the cost of goods sold. The net change to
the account for the month, the difference between the total
additions and reductions to the account, represented the
net change in the overburden removal costs associated with
exposed but unmined coal.
Thus, in keeping its books, petitioner treated the
overburden removal costs incurred at the Gillette mine as
costs that were incurred to maintain current production of
the coal, and petitioner included those costs in its cost
of goods sold. Petitioner did not treat them as costs
related to future coal production, such as development
costs, which are capitalized. See generally Fixed,
Financial Reporting in the Extractive Industries,
Accounting Research Study No. 11 at 49-57 (1969); FASB
Discussion Memorandum, Financial Accounting and Reporting
in the Extractive Industries 45-58 (Dec. 23, 1976).
Furthermore, in December 1983, petitioner created a general
ledger account, Preproduction Overburden Removal--Year to
Date Change, that quantified the amount of the overburden
removal costs attributable to exposed but unmined coal for
purposes of deferring those expenses until the related coal
was extracted and sold.
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