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SOL. MAN. Chapter 17 Depletion OF Mineral Resources IA
PART 1B
Intermediate Accounting 1 (Jose Rizal Memorial State University)
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Chapter 17
Depletion of Mineral Resources
PROBLEM 1: TRUE OR FALSE
1. FALSE
2. TRUE
3. TRUE
4. FALSE
5. TRUE
6. TRUE
7. TRUE
8. TRUE
9. FALSE
10. TRUE
PROBLEM 2: FOR CLASSROOM DISCUSSION
1. B
2. C
3. D
4. C
5. C
6. D
7. Solutions:
Requirement (a):
500,000 + 500,000 = 1,000,000 x 500/2,000= 250,000
Requirement (b):
250,000 x (300,000 oz. sold / 500,000 oz. extracted) = 150,000
8.
➢
➢
Solution:
(10M – 3M) x 6/10 + 3M = 7,200,000 carrying amount on Jan. 1, 20x3;
(7.2M – 3M residual value) = 4.2M new depletion base x 1.5M/7.5M =
840,000
9. Solutions:
Requirement (a):
(13.2M – 400K) x [(25K x 6 months) / 1.6M] = 1,200,000
Requirement (b):
➢ 1,600,000 / (25,000 x 12mos.) = 5.33 years life of the mine
➢ 5.33 years life of the mine vs. 8-year life of equipment
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➢
Since the life of the mine is shorter than the life of the equipment, the
output method is used in computing depreciation.
➢
(6.6M – 200K)/ x [(25K x 6 months) / 1.6M] = 600,000
PROBLEM 3: EXERCISE
1.
Solution:
Acquisition costs ....................................
Restoration costs ....................................
Residual value--land .................................
Development costs ....................................
Building .............................................
Salvage value--building ..............................
₱6,400,000/4,000,000 tons = ₱1.60 per ton
₱5,600,000
800,000
(640,000)
560,000
88,000
(8,000)
₱6,400,000
2001:
700,000 tons x ₱1.60 = ......................
₱1,120,000
2002:
Original cost ...............................
Additional costs--2002 ......................
₱6,400,000
272,000
6,672,000
(1,120,000)
₱5,552,000
Estimated depletion--2001 ...................
Balance subject to depletion ................
₱5,552,000/3,300,000 tons = ₱1.68 per ton (rounded)
900,000 tons x ₱1.68 = ..............................
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₱1,512,000
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PROBLEM 4: CLASSROOM ACTIVITY
Solutions:
Requirement (a):
Answer: February 14, 20x1 to July 1, 20x3.
Requirement (b):
20x1 to 20x3
Deferred exploration costs – Site A
1,970,000,000
Cash
1,970,000,000
to record the exploration costs as exploration and evaluation
assets (in accordance with the Company’s policy)
Deferred exploration costs – Site B
Cash
2,020,000,000
2,020,000,000
Site A
(in ,000,000s)
1,000
60
560
350
1,970
Property rights
License and legal fees
Submersible pumps
Other exploration costs
Deferred exploration costs
Site B
(in ,000,000s)
1,200
90
450
280
2,020
July 1, 20x3
Exploration expense – Site B
2,020,000,000
Deferred exploration costs – Site B
2,020,000,000
to charge as expense the deferred exploration costs on Site B
where no mineable ore has been discovered
Mine development costs – Site A
1,970,000,000
Deferred exploration costs – Site A
1,970,000,000
to reclassify the deferred exploration costs in Site A to mine
development costs
Mine development costs – Site A
1,100,000,000
Cash
1,000,000,000
to record subsequent intangible development costs
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Cash
200,000,000
Mine development costs – Site A
200,000,000
to record the income generated during the development phase as
reduction to the capitalized mine development costs
Dec. 31, 20x3
Mine and mining properties – Site A
2,914,770,000
Mine development costs – Site A
2,870,000,000(a)
Provision for decommissioning costs
44,770,000
to reclassify the capitalized mine development costs to mine and
mining properties, which shall be subsequently subjected to depletion
(a)
(1,970,000,000 + 1,100,000,000 – 200,000,000) = 2,870,000
Dec. 31, 20x4
Inventory (Depletion)
614,249,400
Accumulated depletion (2,914,770,000 x 22%)
to recognize the depletion charge for the period
614,249,400
PROBLEM 5: MULTIPLE CHOICE - THEORY
6. A
1. B
7. D
2. A
8. C
3. A
9. D
4. D
10. A
5. C
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PROBLEM 6: MULTIPLE CHOICE - COMPUTATIONAL
1. B
Solution:
Purchase cost of mine
2,640,000
PV of restoration costs
180,000
Development costs
360,000
Residual value
(300,000)
Depletion base
2,880,000
Estimated reserves
1,200,000
Depletion rate
2
Actual tons extracted
60,000
Depletion
144,000
2. C
Purchase cost of mine
Development costs
Residual value
Depletion base
Estimated reserves
Depletion rate
Tons sold
Depletion in COGS
7,200,000
2,160,000
(720,000)
8,640,000
4,320,000
2
480,000
960,000
3. A
Solution:
Purchase cost of mine
Accumulated depletion - 1/1/x3
Carrying amount - 1/1/x3
Residual value
Revised depletion base - 1/1/x3
Revised estimate of reserves a
Revised depletion rate - 20x3
1,000,000
(100,000)
900,000
(200,000)
700,000
165,000
4.24
a
The revised estimate of reserves is computed as follows:
Original estimate of reserves
160,000
Understatement of total estimate
25,000
Tons extracted in 20x2
(20,000)
Remaining reserves - 1/1/x3
165,000
4. C
Solution:
Retained earnings
Cash dividends declared
Liquidating dividends
600,000
(800,000)
(200,000)
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5.
B (₱9M + ₱1.5M – ₱1M) ÷ 2.5M tons = 3.8
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