Wasting Assets

Definition
Wasting assets, also known as natural resources are material objects of economic value and utility to man
produced by nature. Wasting assets are so called because these are physically consumed and once consumed, the
wasting assets cannot be replaced anymore.
Cost of wasting assets
 Acquisition cost is the price paid to obtain the property right to search and find an undiscovered and
already discovered resource. Acquisition costs of wasting assets are determined similarly with the cost of
PPE.
NOTE: the land value is the residual value of a wasting asset for purposes of computing depletion
 Exploration cost these are costs incurred after obtaining legal right to explore a site but before technical
feasibility with the purpose of searching mineral resources.
Exploration costs are accounted for using successful efforts method or full cost method.

What is to be capitalized?
Successful Efforts Method (large) – Only successful exploration
Full cost method (small) – both unsuccessful and successful
Successful efforts method is usually used by large wasting assets corporation while full cost method is
usually used by small wasting assets method.

 Development cost is the cost incurred to exploit or extract the natural resource that has been located
through successful exploration.
Development costs are divided into tangible development costs and intangible development costs
Note: Tangible development costs are part of PPE
Useful life to be used Depreciation Method
Movable tangible Own Useful Life Straight line or other stated methods
Immovable Shorter between its own life and life Own UL<UL of WA Straight line or other stated methods
Tangible of wasting assets Own UL>UL of WA Output method
 Restoration Costs
Estimated restoration cost is the cost to be incurred in order to bring the property to its original
condition. The estimated cost of restoring the property to original condition is capitalized only when the
entity incurs the obligation when the asset is acquired. Estimated restoration costs are measured at
present value of the future cash flows to be incurred to restore the property.

Depletion – is the removal, extraction or exhaustion of the natural resource or wasting asset. Depletion, as an
accounting procedure, is the systematic allocation of the depletable amount of a wasting asset over the periods
the natural resource is extracted or produced.

Depletion Period – depletion of wasting assets commences when the wasting assets start to be extracted. In the
periods with no extraction, there is no depletion. Depletion ceases when natural resources are physically
consumed or when the natural resource is derecognized before full consumption whichever is earlier.

Depletion Method – normally, depletion is computed using output or production method. The depletable amount
of the asset is divided by the units estimated to be extracted to obtain depletion rate per unit. The depletion rate
per unit is then multiplied by the number of units extracted during the year to arrive at the depletion for the
period.

Changes in Estimate
The estimates of recoverable reserves from the natural resource and any residual value are reviewed at least at
each reporting date. Any revisions are accounted for prospectively under PAS 8.

The following steps should be followed in accounting for change in accounting estimate:
Step 1: Determine the carrying amount of the wasting assets at the beginning of the period of change (Latest
carrying amount before the change). This carrying amount shall be the basis of the new estimate a.k.a the “as if”
new cost.
Step 2: Apply the changes by depleting the carrying amount on Step 1 using the revised estimated number of
reserves and/or residual value.

Quiz notes:
 Recognition of exploration and evaluation of wasting assets is based on management’s judgment.
 An entity shall treat exploration and evaluation assets as a separate class of assets and make the
disclosures required by either PAS 16 (PPE) or PAS 38 (Intangible Assets).
 The expenses incurred after the technical feasibility and commercial viability of extracting mineral
resource are demonstrable NOT included within exploration and evaluation assets.
 PFRS 6 (Exploration for and Evaluation of Mineral Resources) exempts an entity from applying the
hierarchy of reporting standards laid down by PAS 8 Accounting Policies, Changes in Accounting
Estimates and Errors.
 After initial recognition, an entity shall apply either cost model or revaluation model to exploration and
evaluation assets.