- 47 -
Year Development Expenditure Production Cost Difference
1 185.00% + 2.25% 2100% (12.75%)
2 3.30 -- 3.30
3 3.15 –- 3.15
4 3.15 –- 3.15
5 3.15 –- 3.15
Total 100 100 –-
1 80 percent for 1986.
2 Assuming, for simplicity’s sake, that all of the coal related
to the overburden removal expenditures was sold in the year the costs
were incurred.
As indicated above, if overburden removal costs are treated
as development expenditures, then 87.25 percent of the
total would be deductible in the year incurred, and 12.75
percent of the total would be spread, as deductions, over
years 2 through 5. On the other hand, if overburden
removal costs are treated as production costs, then 100
percent of the total would be included in petitioner’s cost
of goods sold and would offset gross receipts from the mine
in the year the coal is sold.
It is apparent from the above that the change in the
treatment of overburden removal costs that petitioner seeks
to make entails a change in the timing of the income
reported from the mine and not a change in the total income
realized over the life of the mine. Accordingly, the
aggregate overburden removal costs petitioner incurred at
the Gillette mine are a material item because they involve
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