On January 1, 2020 Universal Company paid P10,800,000 for property containing natural resource of

2,000,000 tons of ore.

The estimated discounted amount of restoring the land after the resource is exhausted is P900,000 and
the land will have a value of P1,300,000 after it is restored for suitable use.

Tunnels, bunk houses and other fixed installations are constructed in the amount of P8,000,000. Such
expenditures are to be charged to mine improvements. (use output method for depreciation)

Operations began on January 1, 2021 and resources removed totalled 600,000 tons. During 2022, a
discovery was made indicating that available resources after 2022 will total 1,875,000 tons.

At the beginning of 2022, additional bunk houses were constructed in the amount of P1,540,000. In
2022, only 400,000 tons were mined because of a strike.

Required:

Prepare journal entries for 2020, 2021 and 2022. (use the table below and add additional cells, if
necessary)

Date Dr Cr
2020
Jan 1 Ore property P10,800,000
Cash P10,800,000

Ore property 900,000

Cash 900,000

Mine improvements 8,000,000

Cash 8,000,000

2021
Jan 1 Depletion 3,120,000
Accumulated depletion 3,120,000

Depreciation-mining improvements 2,400,000

Accumulated depreciation-mining improvements 2,400,000

2022
Jan 1 Mine improvements 1,540,000
Cash 1,540,000

Depletion 1,280,000
Accumulated depletion 1,280,000

Depreciation-mining improvements 1,256,000

Accumulated depreciation-mining improvements 1,256,000
Acquisition cost P 10,800,000

Restoration cost 900,000

Depletion base P11,700,000

Depletion rate:

1,700,000-1,300,000/2,000,000

=P5.2

OUTPUT METHOD:

Depreciation per unit = 8,000,000/2,000,000

=P4.00

Depreciation = 600,000× 4

=P2,400,000

2021

600,000 × 5.2 =P3,120,000

2022

Depletable amount = {10,800,000-(1,300,000-900,000)}

= P10,400,000

Depletable amount P10,400,000

Less: Depletion foe 2021 3,120,000

Total P7,280,000

Depletion rate = 7,280,000/(1,875,000+400,000)

 = P3.20

Depletion = 400,000 × 3.2

= P1,280,000

OUTPUT METHOD

Cost (8,000,000+1,540,000) P9,540,000

Less: Accumulated Depreciation 2,400,000

Total P7,140,000

Depreciation per unit = 7,140,000 ÷ 2,275,000

= P3.14

Depreciation = 400,000 × 3.14

= P1,256,000