NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013
(All amounts in US$’000’s unless otherwise stated)
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FORTUNA SILVER MINES INC. | 2014 ANNUAL REPORT
ii.
Environmental disturbance restoration provisions
During the operating life of an asset, events such as infractions of environmental laws or regulations may occur. These
events are not related to the normal operation of the asset and are referred to as environmental disturbance restoration
provisions (“EDRP”). The costs associated with an EDRP are accrued and charged to earnings in the period in which the
event giving rise to the liability occurs. Any subsequent adjustments to an EDRP due to changes in estimates are also
charged to earnings in the period of adjustment. These costs are not capitalized as part of the long-lived asset’s carrying
value.
iii. Other provisions
Provisions are recognized when a present legal or constructive obligation exists, as a result of past events, and it is
probable that an outflow of resources that can be reliably estimated will be required to settle the obligation. Where the
effect is material, the provision is discounted using an appropriate current market-based pre-tax discount rate.
i) Inventories
Inventories include metals contained in concentrates, stockpiled ore, materials, and supplies. The classification of metals
inventory is determined by the stage in the production process. Product inventories are sampled for metal content and
are valued based on the lower of actual production costs incurred or estimated net realizable value based upon the
period ending prices of contained metal.
Ore stockpile and finished goods inventories are valued at the lower of production cost and net realizable value. Materials
and supplies are valued at the lower of average cost and net realizable value. Production costs include all mine site
costs.
j) Assets Held for Sale
A non-current asset is classified as held for sale when it meets the following criteria:
• the non-current asset is available for immediate sale in its present condition subject only to terms that are usual
and customary for sales of such assets; and,
• the sale of the non-current asset is highly probable. For the sale to be highly probable:
• the appropriate level of management must be committed to a plan to sell the asset;
• an active program to locate a buyer and complete the plan must have been initiated;
• the non-current asset or disposal group must be actively marketed for sale at a price that is reasonable in
relation to its current fair value;
• the sale should be expected to qualify for recognition as a completed sale within one year from the date of
classification as held for sale (with certain exceptions); and,
• actions required to complete the plan should indicate that it is unlikely that significant changes to the plan will
be made or that the plan will be withdrawn.
Assets held for sale are not depreciated. When the sale of assets held for sale is expect to occur beyond one year, the
assets are measured at the lower of its carrying amount and fair value less costs to sell. Any gain or loss from initial
measurement and subsequent measurement are recorded in other comprehensive income but not in excess of cumulative
impairment losses.
k) Income Taxes
Income tax expense consists of current and deferred tax expense. Income tax is recognized in the consolidated statement
of income.
Current tax expense is the expected tax payable on the taxable income for the year, using tax rates enacted or
substantially enacted at period end, adjusted for amendments to tax payable with regards to previous years.
Deferred tax assets and liabilities are recognized for deferred tax consequences attributable to unused tax loss carry
forwards, unused tax credits and differences between the financial statement carrying amounts of existing assets and
liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using the enacted or
substantially enacted tax rates expected to apply when the asset is realized or the liability settled.
The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income or loss in the period that
substantive enactment occurs.
A deferred tax asset is recognized to the extent that it is probable that future taxable income will be available against
which the asset can be utilized. To the extent that the Company does not consider it probable that deferred tax asset
will be recovered, the deferred tax asset is reduced.
2. Basis of Consolidation and Summary of Significant Accounting Policies (Continued)
h) Provisions (Continued)
