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Depletion VL

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Chloe Suarez
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58 views18 pages

Depletion VL

Uploaded by

Chloe Suarez
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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luation expenditures, 3. Which of the follow valuation asset"? EES vod nee alfy 2 an exploration and A Eipenditte fr acqusi 8 Bronce for econo OH ere ratory driling, tre eee the ‘evelopment of, ‘mineral resources, a ities in elation to, evaluating ‘the technical feasibility and rercial Viability of extracting a, ‘Mineral resource 4. IFRS6 Exploration 2 nae for and Evaluation of Mineral Resources ops a expendtues A When Searching for an area that may Warent detaied exploration, even though the entity has not ‘yet obtained the legal rights to ‘explore a specific area, © B. When the legal Fahts to explore a speci ares have been obtained, but the technical feasibility and commerciat ‘ably of extracting @ mineral resource are not yet demonstrable, C. When a specific a Processing the resource’ to make it marketable or transportable, ration and eval Cost. Fair value, C._ Fair value less estimated costs of disposal, D. Present value, the: 6. Exploration and evaluation assets are subsequently mezsured using A. Cost model, 8. Revaluation model. C._ Fair value model. 77 esoraton COs nt costs. yn and ‘developmer " Exploration 3 rms pat of He COE PRU ese : 8S for i acceptable methods of acco " Yunting for, & efforts method. Hoa, method. Both A and B. Neither A nor B. related to “dry holes”, oF unsuccessfy) on der the successful efforts method ces exploration costs. Sony s._Boersed unde te ful cost method of ecountng fren 1 Gtalzed under the successful efforts method Og ‘exploration costs i fy wv. Capitalized under the full cost method of accounting fo eer, (A Land IV. B. Iand Il. c. Land Il. D, Mand. 10, Which ofthe foloning wil not fom part ofthe cost of natural resource, A B. Expl o. E A a 12. Which of the following is correct about depletion? B c D. “leuistion cot ofthe mineral resource deposit. oration cost. E Pie development cost associated with equipment used to exe mineral resource. Intangible development cost such as dling, tunnel, and shat ‘Al of these will form part ofthe cost of natural resource. Depletion 2 és 11. Which of the following is incorrect about depletion? Depletion is the systematic allocation of the depletion base of a mtr resource over the period the natural resource is extracted. Depletion is computed using the output method. Depletion is considered as cost of materials used in @ production. ‘All these statements are true about depletion. pletion is treated as an inventoriable cost. Depletion is treated as a period cost. Depletion forms part ofthe cost of goods sod in the period of etraten AandC. 778 Band C. 0 # ear arial E. 13. The most common m, "A. Straight-line m, B. Sum of the years" YE2rS dots met uble declining b; od, fein methods "8 method, S an alternative use is depreciated (fe Staight ine metog put method, C._ Straight-line method i ae Imining activites which has no alternative use is depreciated A. Straight-ine method, 8. Output method, I the mining period is shorter than the useful ite of the Property. : EyiCandD 17. Which ofthe following statements is correct regarding depreciation of Properties 2 activities during the period of shutdown? ing shutdown, straight line method of deprecation can be used, B. During shutdown, output method of depreciation may be used, During shutdown, the computation of depreciation isnot allowed, . Daring shutdown, an ent has the sole discretion on which between output method or straight-line method to apply in depreciating its mining properties i 18. This doctrine states that "Due tothe replaceable character of the entity's assets, dividends can be distributed not only to the extent of unrestricted retained earnings, but also to the extent of accumulated depletion that has been realized but not yet liquidated”. A. Trust fund doctrine. lasting asset doctrine, C. Dividend distribution doctrine, D. Legal capital doctrine, 779 Explanation: Senditues incured by an entity in connection with the 2dloration for and evaluation of mineral resources before the {echnical feasbilty and commercial viability of extracting 2 ‘mineral resource are demonstrable, The following are examples of expenditures that may be included in the intial measurement of exploration and evaluation assets: Acquisition of rights to explore, Topographical, geological, geochemical, and geophysical sudles. Exploratory etilng - Trenching. Sampling; and Activites in relation to evaluating the technical feasibility and commercial viability of extracting a mineral resource | | z |The following are exciuded from exoration and evaluation expenditures: %Expencitures incurred before an entity obtained legal rights to expire. 781 2 ; 10 | fer the technical feasibility ang acting mineral reSOUICES are deny "a statis x Any. developmental expenditure 9 production preparation ard oad ta, 8 isc aan cam? Se ’ eae 7 |____—L are two methods of accounting for ex a There ora COs 3) efforts method (4) Full cost method tN Under the success be method, the ayy to the discovery directly reated of commercin ; ra ree is capitalized 2S Cost of th . ost related to “dry holegr su" net natural resour sed in the period incurreg, ' °* eal ‘The exploration discovery is expen Under the full cost method, all explora urea of not, are copitalzed 2s cea, resource discovery. te Scat | _—ipment cost includes all the Tanai equipment cost includes all the transporaga Taratheavy equipment needed to extract th cn ay cms dy for market. These costs are not atu ee hatural resources but capitalized and deprected sage rat, | Depletion is treated as an Inventoriable (or produt ag —~ Depiton is treated as an inventoriable (or produc) cae sf the related products sold, depletion wil for of goods sold. wm Paro theca If the related product is not ‘yet sold, depletion wil the ending inventory. en emia 4 Revision of depletion rate is accounted ar for curenty an -000- BLEM 16-1 Exploration cy, <= e023, Life Company incur: pur Sv There are two methods of account (2) Successul efforts meted eran costs (2) Full cost method © Te oploration cast related to “ery holes", or unsuccessful discovery is ‘expensed in the period incurred > Under the fll cst method, al exploration costs, whether sucessful or not, are Capitalized as cost ofthe successful resource discovery, PROBLEM 16-2 Depletion; Basic Concepts. At the beginning of the year 2023, Parcel Co. purchased a mineral mine with extractable ore estimated at 1,200,000 tons. 7 21,120,000 After ithas extracted all the ore, the company wil be required by law to restore the land to t's original condition at an estimated cost of P1,680,000. The present value ofthe estimated restoration cost is 1,440,000. ‘The company believed that it will be able to sell the property afterwards for P2,400,000. red P2, 8801 veces toe acted 2 0,000 3, ANSWER: A 0,000 tons sold xP19.20 per ton = 4. ANSWER: B (0,000 tos | 20,000 tons remain Comments: > Depletion is treat ° M80 ole ote 6 Ri id ing x PI9.20 = inventory. 7 80 04 60,000 tons, uate fr 202 retion should on shal be included in Cost of yay Sou (000 of development cost een, the 3? G D. P19.40 per ton 21.20 per ton be recorded for 20; oP153600 D. —P1,552,000 fy 1,536,000 1,552,000 iG D. 25,440,000 (2,400,000) 23,040,000 1,200,000 tons ANSWER: C ines xP19.20 per ton = B,536,000 4,852,000 etracted ~ 60,000 tons sold) x P19.20 ted as an inventoriable (or product) cost. depletion will form part of the cost of guts If the relted products nat yet sold, depletion will form part ofthe ens 84 pROBLEM 16-3 Deetion _ ete Gn Jana ty 2023, Cosette coed equent Stracable oe estimated ay 4,009 0 Pre 7 ms, iehas extracted all the ore weil condition at an esting om IS pany believed that it wipe able oF the ty 2023, rOads were cong ner rined ore ata cost on the oe mil F P,800,o09 12 St. 2009, eo "2 Were extracted and sold In December 31, 26 wen 2024, rrining: 225,000 tons oF ore were, Mind an ot 00,000 tons oor ae avaale for inz0a¢ toner “eons ould be ecognized rr ngeotn & aio in 20242 ROBLEM 16:3 Anever Soon, WENER:A&S2ltioe Gig ‘purchase Bice ofthe mineral ming Aa: Restoration CO (atpreset ae Add: Cost of roads {otal cost ofthe mineral mine ess: Residual value Depletable cost Depletion rate ~ 2023 (PS, 94744 tng) Depletable cost Less: Depletion ~ 2023 (29, ‘Year OT tons x P2.48 pe ony po Mineral mine, 12/31/2023 — feoca_ 404,000 New estimate ~ 12/31/2024 Add: Extractions ~ 2024 5,000,000, ‘allable tons for mining, 1/1/2024 [Se Depletion rate ~ 2024 (P9,404,000/5,225 oo tons) 1,80 per ton Depletion ~ 2024 (225,000 ‘tons x P1.80 per ton) 405,000 PROBLEM 16-4 Depletion - Subsequent Year 150,000 units and 250,000 unis were extracted in 2023 and 2024, respectively, Ak the beginning of 2025, additional development costs were 1,500,000 and the ‘OM determined that there are sl 2 500,000 uns remained in the resource dee, 4m 2025, 300,000 units were extracted, 785 2024? 3,750,000 4,500,000 rate to be applied in 20257 10.20 10.35 tion in 2025? much ste deete8ee.™ “p3,105,000 3,060,000 iSWER: C 3,750,000 . AN 250,000 units x PA5 per unit = ote: The depletion rate for 2024 isthe same as the depletion rate in 2023, 3, ANSWER: C “Tofal cost ofthe ore mine 30,000,000 125 Recurulated depletion, 12/31/2024 7(150,000 units + 250,000 units) x P15 per unit] __(6,000,000) _ Carrying valve, 12/31/2024 24,000,000 ‘Add: Additional development costs "11500000 Carving value, 1/1/2025 ——~pas's00,000 eleton ate ~ 2025 (P25,500,000/25M units) [Link]-unit 4, ANSWER: D 300,000 units x P10.20 per unit = 3,060,000 7AR OBLEM 16-5 Depy, Eien 2023, Great Mining co olin 2023 purchase Price oF the min estimated SUPPIY of mine; TOPErty estimated value of the pron SOUrces mineral resources ee 1A) NCS EMV Femoval of 3,500,000 tons. Ie Year 877,500 Gaptalized development cous ees “Toa SOUS FEM ding ty Year P1,012,500 925 250,000 tor Copitalzed development costs es ‘otal resources removed du Ting the year. None 550,000 tons Estimated total resources to ‘ased on new discovereg = *E nut years Capitalized development costs 3,660,000 tons Total resources removed this year 01,287,350 41, What is the depletion rate for 20 ean tn, 2, How much is the depletion for ust 3. How much is the depletion for 20245 4, What is the depletion rate for 20267 5. How much is the depletion for 20269 PROBLEM 16-5 Answers & Solutions Guide ANSWER: 1.76 perton = —— = Purchase price of the mining prog Less: Depletion ~ 2023 re Poa Carrying value, 12/31/2023, c ‘Add: Capitalized development costs - 2024 TL to Carrying value, 1/1/2024 ~~ P7,020,000 Less: Residual value 877,500) Depletable amount 6,142,500 Divided by: Remaining supply of mineral resources at the beginning of 2024 3,500,000 tons*_ Depletion rate — 2024 1.76 per ton ‘None of the resources were removed during 2023. 2. ANSWER: P440,000 Depletion - 2024 = Tons removed during 2024 x Depletion rate ~ 2024 Depletion — 2024 = 250,000 tons x P1.76 per ton Depletion - 2024 = P440,000 787 for ansishesae that of2028 berg incurred additional capitalizable is “ Peng: he ate of supply of mineral eSOUes atthe eset oem ns + 70 fons) 700,000 tons x P1.38 per ton fetion eatery npany purchased property with natural TeSOUreSS Tor eee Tesidual velue of P3,000,000. trea ied to restore the prover tS ogra crdten ay However, the entity i real natural resources are The ent determined thatthe presen vale bace restoration cost is 400,000. 1m 2023, the entity spent P2 “The property had @ 300,000 in development cost. inz024,an amount of 200,000 was spent for addtional development on tein, ‘The tonnage mined and estimated remaining tons res Tonsetacted 2023 - 10,000,000, zor 3,000,000 7,000,000 mos 3,500,000 {500,000 +L, What amount should be recognized as depletion for 2024? ‘A. P1360,000 = C._PI,680,000 B pije20000 ©=—«D._—~P, 820,000 2, What anount should be recognized as depletion for 2025? A 1,890,000. (2,205,000 B p2030,000 ©. —_—P3,150,000 rice of the pro, PC cent value of restora) add Pevelopment cost Cost ~ 2023 a Depletion ~ 2023, ing value, 12/31/2023 sta 2c Aerrving value, 1/1/2024 10n cost nda otal it cost ~ 2004 6,40 pepletion rate ~ 2024 [(P6.46 ~ ty soy, tore eee S PO.54 per pesleton ~ 2024 (3M tons PO5¢ per ony BL a : 2. ANSWER: C = carrying value, 1/1/2024 tess: Depletion ~ 2024 6,400,000 carrying value, 12/31/2024 —(1,820,000)_ 4,780,000, Depletion rate = 2025 [4.786 ~ My eHtong 9 63 per to .63 per ton Depletion ~ 2025 (3.5M tons x P0.63 per ton) 2,205,000 PROBLEM 16-7 Depletion and Depreciation n July 1, 2023, All de Rosas Company, a calender year Gomconp-—epeee amine ‘The fotal purchase price was P13,120,000, of wack a 200 wos algae = 600,000 wi Estimated reserves were 1,800,000 tons, esate reser ‘The company expected to extract and sell 25,000 ‘The entity purchased new equipment on July 1, 2023, for P6,000,0 a useful life of 8 years and has a residual value of 240,000 Po te SaulBment has CASE 1: The equipment can be used in another mining site. 1, What amount should be recorded as depletion for 2023? A P960,000 Cc P1,920,000 B. 1,093,200 D. 2,186,400 2. What amount should be recorded as depreciation of the mining equipment for 2023? A. 240,000 Cc. P480,000 B. P360,000 D. 720,000 CASE 2: The equipment would be of no use after all the resources are removed in the ‘mining site, 1. What amount should be recorded as depletion for 20237 ‘A. P960,000 C. P1,920,000 B. _P1,093,200 D. P2,186,400 789 what amount should be recorded as q 2 ‘equipment for 2023? ‘ePrecis A P240,000 C. — P480,000 B. P360,000 D. 720,000 3, Assuming the equipment had a useful life of 5 ‘should be recorded as depreciation for 20237 A. P360,000 c.P576,000 B, 480,000 D. 1,152,000 PROBLEM 16-7 Answers & Solutions Guide _ CASE 1 oe 1. ANSWER: A e ‘Tota purchase price 13,120,000 Less: Residual value __(1,500,000)_ ble amount PLL,520,000 aided by: Estimated reserves 1,800,000 tons _ Depletion rate 76.40 per ton Depletion - 2023 = (25,000 tors/month x 6 months) x P6.40/ton Depletion - 2023 = P960,000 ‘Comment: The depletion to be reported for the year 2023 is for § the operations started only in July. ree anomie G erin an = PAD 240000 gp. Commant: Since the equipment can be used in another mining ste, the be deprecated using the straight-line method. omen case 2 sow vei A. on eet rr) 6A Depletion - 2023 = P960,000 2 ancwer ¢ Useful life ‘8 years ‘Mining period* 6 years Shorter (Mining period) 6 years: Depreciation method to be employed Output method *1,6!/(25,000 tons/month x 12) Depreciation rate 6,000,000 = 240,000. P3.20 per ton 1,800,000 tons Depreciation ~ 2023 = (25,000 tons/month x 6 months) x P3.20/ton Depreciation ~ 2023 = P480,000 hap 16; Den of Maal Rene hee bed comegh has no alternative use afterall the resources are removed oe ii ning period Fa life of the equipment and the mining lore ‘ oe ot shall be deprecated using te pte se OF he equipment ereiors ment: SI ‘he output method ANSWER: C pl life S years os ving Wife) Sars ato method a Strightne method (25) * Pau 25,000 tons/mont = 6,000,000 ~ 24 pepreiavon - 2023 eno gz = 576,000 Since the equipment has no alterat ed ment: SINCE ative use after all the resources are rermov come mining site, We compare first the useful life ofthe equipment and the mining period. in his case, the useful life of the equipment is shorter than the mining period, therefore, Intuioment shal be depreciated using the staightsne method pROBLEM 16:8 Depletion and Depreciation jn January 2, 2023, EENIE MEENIE Corp, acquired property containing mineral resources for 60,000,000. Total costs of exploration and development costs for 2023 was 3,200,000. EENIE MEENIE is mandated by the Mining Act to restore the site after eight yeats. Based on the most reliable measurement, the amount of restoration cost_is 1,800,000 and current market-based discount rate is 10% (Present value factor is 0.467). con the same date, EENIE MEENIE acquired two mining equipment: Mining equipment A Spd Mining equipment B. Mining equipment A costs 2,400,000 while Mining equipment B {osts P3,600,000. Mining equipment A can be used in other mining activities while Mining equipment B'S use is limited only to the current mining activity. Mining equipment A has tseful life of 20 years with no residual value while Mining equipment 8 has an estimated tseful life of 10 years with residual value equal to 20% of is cost. Geologists estimate that the total units estimated to be extracted is 12,000,000. It is estimated that, on the average, 1,500,000 units will be extracted each year during the Useful life of the wasting assets. ‘Actual units extracted in 2023 and 2024 were 1,600,000 and 1,400,000, respectively. (Round off depreciation and depletion rates to two decimal places) 1. How much is the initial cost of the mineral resources? ‘A. 60,000,000

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