Seatwork DEPLETION

1. On January 1, 2019, Mankayan Company purchased land with valuable natural ore deposits for
P10, 000,000. The residual value of the land was P2, 000,000. At the time of purchase, a
geological survey estimated a recoverable output of 4,000,000 tons.

Early in 2019, roads were constructed on the land to aid in the extraction and transportation of the
mined ore at a cost of P1, 600,000. In 2019, 500,000tons were mined and sold,

A new survey at the end of 2020 estimated 4,200,000 tons of ore available for mining. In 2020, 800,000
tons were mined and sold.

1. What amount should be recognized as depletion for 2019?

2. What amount should be recognized as depletion for 2020?

2. In 2016, Sunflower Company acquired a silver mine in Eastern Mindanao. Because the mine is
located deep in the Mindanao frontier, the entity was able to acquire the mine for the low price
of P50, 000.

In 2017, the entity constructed a road to the silver mine costing P5, 000,000. Improvements and other
development costs made in 2017 cost P750, 000.

Because of the improvements to the mine and to the surrounding land, it is estimated that the mine can
be sold for P600, 000 when mining activities are complete.

During 2018, a building was constructed near the mine site to house the mine workers and their
families.

The total cost of the building was P2, 000,000. Estimated residual value is P200, 000.

Geologist estimated that 4,000,000 tons of silver ore could be removed from the mine for refining.

During 2019, the first year of operations, only 500,000 tons of silver ore were removed from the mine.

However, in 2020, workers mined 1,000,000 tons of silver.

During the same year, geologists discovered that the mine contained 3,000,000 tons of silver ore in
addition to the original 4,000,000 tons.
Development costs of P1, 300,000 were made to the mine early in 2020 to facilitate to removal of the
additional silver.

Early in 2020, an additional building was constructed at a cost of P375, 000 to house the additional
workers needed to excavate the added silver. This building is not expected to have any residual value.

1. What amount should be recorded as depletion for 2019?

2. What amount should be recorded as depletion for 2020?
3. What amount should be recorded as depreciation of building for 2019?
4. What amount should be recorded as depreciation of building for 2020?

3. Samar Company paid P5, 400,000 for property containing natural resource of 2,000,000 tons of
ore.

The present value of the estimated cost of restoring the land after the resource is extracted is P450, 000.
The land will have a value of P650, 000 after it is restored for suitable use.

Tunnels, bunk houses and other fixed installations are constructed at a cost of P8, 000,000 and such
expenditures are charged to mine improvements.

Operations began on January 1, 2019 and resources removed totaled 600,000 tons. During 2020, a
discovery was made indicating that available resource after 2020 will total 1,875,000 tons.

At the beginning of 2020, additional bunk houses were constructed in the amount of P770, 000. In 2020,
only 400,000 tons were mined because of a strike.

1. What amount should be recorded as depletion for 2019?

2. What amount should be recorded as depletion for 2020?
3. What amount should be recorded asdepreciation2019?
4. What amount should be recorded asdepreciation 2020?

4. In 2018, Lepanto Mining Company purchased property with natural resources for P28, 000,000.
The property had a residual value of P5, 000,000.

However, the entity is required to restore the property to the original condition at a discounted amount
of P2, 000,000.

In 2018, the entity spent P1, 000,000 in development cost and P3, 000,000 in building on the property.

The entity does not anticipate that the building will have utility after the natural resources are removed.
In 2019, an amount of P1, 000,000 was spent for additional development on the mine.

The tonnage mined and estimated remaining tons are:

Tons extracted Tons remaining

2018 0 10,000,000
2019 3,000,000 7,000,000
2020 3,500,000 2,500,000

1. What amount should be recognized as depletion 2019?

2. What amount should be recognized as depletion 2020?

5. Toledo Mining Company constructed a building costing P2, 800,000 on the mine property on the
mine property. The estimated residual value will not benefit the entity and will be ignored for
purposes of computing depreciation.

The building has an estimated life of 10 years. The total estimated recoverable output from the mine is
500,000 tons. The production of the first four years of operations was;

First year 100,000 tons

Second year 100,000 tons
Third year shut down, no output
Fourth year 100,000 tons

1. What amount should be recorded as depreciation for the fourth year?