Wasting Assets EQUALS

-are material objects of economic value and utility to man produced

by nature

-actually are natural resources

-coal, oil, ore, precious metals such as gold, silber, timber

-wasting assets are so called because these are physically consumed

and cannot be replaced anymore
 ACQUISITION PLUS
COSTS
-is the Price paid to obtain the
property containing the natural
resources

-this is the INITIAL COST of wasting

asset

-charge to any descriptive natural

resource account

-if there is RESIDUAL VALUE after the

extraction of the natural resources,
the portion of the acquisition cost
applicable to the land may be
included in the natural resources
account

-the LAND may be set up in a

separate account and the remaining
cost should be charged to the Natural
Resources account Methods of accounting

-the LAND VALUE is the RESIDUAL

VALUE of a wasting asset for purposes
of computing depletion

-thus This should be deducted from

the total acquisition cost to get the
depletable amount

Accounting treatmet
Initial recognition
Subsequent recognition
CLASSIFICATION
 EXPLORATION AND
EVALUATION COSTS
-Exploration cost is the expenditure incurred BEFORE the TECHNICAL
FEASIBILITY AND COMMERCIAL VIABILITY of extracting the mineral
resources

-simply the EXPLORATION COSTS is the cost incurred in an ATTEMPT

TO LOCATE the natural resources that can economically be extracted
or exploited

-includes RIGHT TO EXPLORE, GEOLOGICAL STUDY, EXPLORATORY

DRILLING, TRENCHING AND SAMPLING

-The exploration may result to SUCCESS OR FAILURE

1. SUCCESSFUL EFFORT METHOD - the exploration costs directly

related to the discovery of commercially producible natural
resources is CAPITALIZED as COST OF THE RESOURCE PROPERTY

2. FULL COST METHOD - ALL exploration costs, whether successful

or unsuccessful, are CAPITALIZED as cost of the successful resource
recovery.. THE COST OF DRILLING DRY HOLES IS PART OF THE COST
OF LOCATING PRODUCIBLE HOLES

may qualify as exploration and evaluation ASSET

Shall be measured initially at COST
Shall apply COST model or REVALUATION MODEL
Either as TANGIBLE of INTANGIBLE ASSET
PLUS
DEVELOPMENT
COSTS
-it is the cost incurred to exploit or extract
the natural resources that has been located
through successful exploration

-It may be in the form of TANGIBLE

EQUIPMENT or INTANGIBLE DEVELOPMENT
COST

-TANGIBLE EQUIPMENT includes heavy

equipment, tunnels, bunkers mine shaft

-the cost of equipment is NOT CAPITALIZED

as cost of natural resources BUT set up in a
separate account and depreciated in
accordance normal depreciation policy

-INTANGIBLE DEVELOPMENT COST is

capitalized as cost of the NATURAL
RESOURCES such as DRILLING, SINKING
MINE SHAFT, CONSTRUCTION WELLS
 ESTIMATED
PLUS RESTORATION
COSTS
-This is the cost to be incurred in order
to bring the property to its original
condition.

-Such restoration cost MAYBE added to

the cost of reousrce property or
"NETTED" against the expected residual
value of the resource property

-ESTIMATED COST OF RESTORING THE

PROPERTY TO ITS ORIGINAL CONDITION
IS CAPITALIZED ONLY WHEN THE ENTITY
INCURS THE OBLIGATION WHEN THE
ASSET IS ACQUIRED

-IN OTHER WORDS, ESTIMATED

RESTORATION COST MUST BE AN
EXISTING PRESENT OBLIGATION
RQUIRED BY LAW OR CONTRACT. THE
ESTIMATED RESTORATION COST MUST
BE DISCOUNTED
DEPLETION -THE REMOVAL, EXTRACTION OR EXHAUSTION OF A NATURAL RESOURCE
-IT IS THE SYSTEMATIC ALLOCATION OF THE DEPLETABLE AMOUNT OF A WASTING ASSET OVER THE PERIOD THE

-IN ESSESNCE, THE DEPLETION IS RECOGNIZED AS THE COST OF THE MATERIAL USED IN PRODUCTION AND THUS
EXTRACTIVE ENTITY SINCE THE WASTING ASSET IS CONCEIVED AS THE TOTAL COST OF THE MATERIALS AVAILABL

DEPLETION METHOD

OUTPUT OR PRODUCTION METHOD

-The DEPLETABLE AMOUNT of the wasting asset is divided by the units estimated to be extracted to obtain a dep
-The DEPLETION RATE per unit is then multiplied by the units extracted during the year to arrive at the depletion

DEPLETABLE AMOUNT
ACQUISITION COST XX
EXPLORATION COST XX
DEVELOPMENT COST XX
ESTIMATED RESTORATION COST XX
TOTAL XXX

DEPLETION RATE = TOTAL DEPLETABLE AMOUNT/ESTIMATED NUMBER OF UNITS TO BE EXTRACTED

DEPLETION = NUMBER OF UNITS EXTRACTED X DEPLETION RATE

ENTRY: DEPLETION XX
ACCUM. DEPLETION XX

INCOME STATEMENT
DEPLETION IS CLASSIFIED AS PART OF THE COST OF SALES

BALANCE SHEET

RESOURCE DEPOSIT AT COST XX

ACCUM. DEPLETION (XX)
CARRYING AMOUNT XX
SSET OVER THE PERIOD THE NATURAL RESOURCE IS EXTRACTED OR PRODUCED

IN PRODUCTION AND THUS BECOMES THE FINISHED PRODUCT OF THE

F THE MATERIALS AVAILABLE FOR PRODUCTION

be extracted to obtain a depletion rate per unit.

ar to arrive at the depletion for the period

UNITS TO BE EXTRACTED