The move to adopt the International Financial Reporting Standards will boost Coal India Ltds’s net worth by $2.4 billion.
The company adhering to the old accounting standards has on its books a $2.4 billion provision on account of the overburden removal reserve. This reserve was maintained as Indian mining accounting is based on mineable deposit and expected lifespan of a mine. In the initial period, the cost of mining was less, but it gradually increased as mining went deeper and thereby leading to a huge reserve balance.
With the adoption of IFRS, the mining cost can now be calculated based on actuals and no provision for future mining is to be made. So the reserve can now be released leading to an increase in the net worth.
To put things in perspective, the present net worth of the company is $6 billion; the change to IFRS would bring the net worth up to $8.4 billion.
