Depletion

guide for getting cost of wasting asset page 850-853

Acquisition cost - (initial cost of the wasting asset)

Exploration cost - cost incurred in locating the natural resources.

Development cost - cost incurred to exploit natural resources.

Restoration cost - cost incurred in bringing the property back to it original condition.

PROBLEM A

Niacquire og property si company kay naa daw natural resources makuha didto. Nakagasto siyag
9,000,000 (initial cost pana siya or acquisition cost). Dili pana sha ang total cost sa wasting asset.

Sa kana daw nga property estimated daw nga makuha nila nga natural resources ara kay 1,000,000 tons.

We are required nga kuhaon ang depletion rate for unit, depletion og journal entry.

First nato buhaton is kuhaon ang total cost sa wasting asset.

Acquisition cost nato is 9,000,000. Then ang problem nistate nga after nimo makuha tanan natural
resources sa kana nga property. Ang property mabaligya pa nimo og 2,500,000 mao na shay gitawag og
residual value -> (The amount the property can be sold after the exploitation of the natural resources).
Ang residual value is ideduct na nato sa total cost of the wasting asset.

Then nakaincur daw tag restoration cost 800,000, niya exploration cost 3,500,000. Development cost
related to drilling chuchu 3,200,000. Naa pajuy usa pa ka development cost pero di na nato sha i apil
because ang production of equipment is not part of the cost of the wasting asset and is subject to
depreciation.

So iadd na nato 9,000,000 + 3,500,000 + 3,200,000 + 800,000 = 16,500,000

Ang 16,500,000 mao na ang total cost sa atong wasting asset. Less the residual value katong 2,500,000.
Para makuha natong depletable amount.

14,000,000 ang depletable amount. Since nana tay depletable amount, makaproceed nata og kuha sa
depletion rate per unit og depletion.

Para makuha ang depletion rate per unit ang formula kay (page 853 last paragraph - 854) depletable
amount of the wasting asset divided by the estimated unit to be extracted.
14,000,000 depletable amount atong idivide sa estimated units nga 1,000,000 tons.

So atoang depletion rate per unit kay 14 per unit. (Number 1 requirement answer)

After ana makuha nana nato ang depletion since naa naman ang depletion rate per unit.

In the current year daw ang entity naka extract og 50,000 tons of mineral.

Ang formula sa depletion kay units extracted multiple sa depletion rate per unit.

50,000 × 14 = 700,000 ang depletion sa current year. (Mao ni number 2 requirement)

Lastly, last requirement kay maghimo og journal entry for the depletion of the wasting asset (page 854)

Debit Depletion 700,000

Credit Accumulated Depletion 700,000

Problem B (page 856) - Depreciation of Mining Property

Ang company nag construct silag building didtos mining property (ang mining property maoy wasting
asset dili ang building). So nakagasto ang company og 2,800,000 para maconstruct ang building, niya
naay estimated useful 10 years ang buiding.

Ang estimated output daw nga makuha nila sa wasting asset (mining property) kay 500,000 tons.

So mao to gitagaan ta nilag timeline og tons nga naextract sa specific years.

Sa problem giask nga need nato kwaon ang depletion og depreciation expense from 1st year to 4th year.

Ditso nalang depreciation expense then if mofollow up si miss nganong wa ka nag depletion answer is
(The building is not a wasting asset and is not depleted but it is subject to depreciation)

Kung mangutana pajud asa ang wasting asset diay

Ang tubag kay (the wasting assets are the natural resources that are to be exploited or extracted in the
mining property)

If mag ask unsa ang building (an asset used in the mining operations)

Niya if mangutana "is depletion and depreciation the same?

Tubag : No maam, they are not same but they are similar in terms of processes. The only difference is
the kind of asset it is systematically allocating. Depletion - wasting asset; depreciation - fixed assets or
kanang what we call PPE.

● First year

Depreciation per unit formula : cost of the asset over estimated output.

2,800,000 divided by 500,000 = 5.60 depreciation per unit sa first year pana.

Since naa natay depreciation per unit makuha na natong depreciation expense.

Units extracted sa kung unsa nga year multiply sa rate per unit.

100,000 × 5.60 = 560,000 depreciation expense.

● Second Year

Since another year naman lahi nasad ang depreciation rate per unit. Every year need kuhaon ang
carrying amount to get the new depreciation rate for that year.

Building, at cost 2,800,000 minus sa Accumulated Depreciation past years or sa first year (560,000)

Equals

Carrying Amount (beginning of second year) 2,240,000

Niya idivide sa remaining outputs (500,000 - 100,000) 400,000

2,240,000 ÷ 400,000 = 5.60 new depreciation rate

100,000 × 5.60 = 560,000 depreciation expense for 2nd year.

● Third Year

Sa third year naa daw shutdown so no output or natural resources ang naextract (page 857-858)

■ RULE IN SHUTDOWN ■

- if wasting asset, there will be no depletion because there is no production.

- If fixed assets, there will still be depreciation.

________

● 3RD YEAR COMPUTATION (Guided naas book page 857, ubos)

Bulding, at cost minusan sa Accumulated Depreciation for the past years = Carrying Amount in that year

Building, at cost 2,800,000 minus Accumulated Depreciation (560,000 1st year + 560,000 second year)

Equals

Carrying Amount (beginning of third year) 1,680,000

Karon naa natay carrying amount makuha na nato ang depreciation for third year.

(■ NAA PA PAJUY RULE IN GETTING DEPRECIATION WHEN IN SHUTDOWN

PAGE 857 - Shutdown topic 3rd paragraph)

BANTAYI JUD PERMI PAGE 857 NAKA ITALLIC MGA RULE.

_______

The depreciation in the year of shutdown is based on the remaining life of the equipment following the
straight line method.

So if ang atong carrying amount is 1,680,000 ato shang idivide sa naremain nga life sa Bulding which is 8
years nalang kay (10-2 years nga nilabay na)

1,680,000 ÷ 8 years = 210,000 depreciation expense for 3rd year.

● 4TH YEAR (Rule after sa year nga naay shutdown page 857 last paragraph)

Since after nani sa 3rd year, magkuha nasa tas new depreciation rate para sa kani nga year (4th year)
In order to get the new depreciation rate need nato kuhaon ang carrying amount nasad sa building.
(Seym ra sa paagi sa pagkuha sa carrying amount ato pag third year)

Building, at cost 2,800,000 minus sa Accumulated depreciation for the past 3 years (560,000 + 560,000 +
210,000) 1,330,000

Equals

Carrying Amount (beginning of 4th year) 1,470,000

Since nana tay carrying amount makuha na nato ang new rate.

1,470,000 atoang idivide sa remaining output (nahibilin nga natural resources nga pede pang makuha).
So 500,000 minusan sa 200,000 nga naextract na.

So 300,000 atoang remaining output.

1,470,000 divided by 300,000 = 4.90 (new rate per ton)

Since nana tay rate makuha na natong depreciation sa 4th year, sa 4th yeat nakaextract daw siyag
100,000 tons

100,000 tons × 4.90 = 490,000 depreciation expense for 4th year.

PROBLEM C - (guide page 853- 857)

So si company nipurchase daw siyag property nga nagcost og 28,000,000. Ang residual value kay
5,000,000 (residual value - mao sha iyang worth if ibaligya niya ang property after naextract niya tanan
natural resources).

Naay restoration cost nga 2,000,000 niya development cost 1,000,000 (2007)

DEPLETION 2007-2009

● 2007
First buhaton nato is kuhaon ang depletable amount. In getting the depletable amount kailangan nato
kuhaon una ang total cost sa wasting asset.

Acquisition cost - 28,000,000

Development Cost (2007) - 1,000,000

Restoration costs- 2,000,000

Total Costs 31,000,000

Less : Residual Value 5,000,000

Equals

Depletable Amount 26,000,000

Karon naa natay depletable amount makuha na natong depreciation rate per unit pag 2007.

26,000,000 ÷ 10,000,000 (estimated output) = 2.6 depletion rate per unit (2007)

Since naa natay depletion rate per unit makuha na natong depletion for year 2007.

0 tons extracted × 2.6 = 0 depletion because there is no production on year 2007.

● 2008

Karon need nato iupdate ang depletable amount. In 2008, nakagasto daw ang company og additional
development cost 1,000,000.

Depletable Amount (2007) 26,000,000

Less: Depletion for past years (0)

Add: Development Cost (2008) - 1,000,000

Total depletable amount (2008) 27,000,000

Naa natay updated depletable amount which is 27,000,000 so makuha na nato ang depletion rate per
unit iadd nato ang tons extracted og tons remaining para makuha nato ang estimated output.
3,000,000 + 7,000,000 = 10,000,000 estimated output

27,000,000 ÷ 10,000,000 = 2.7 depletion rate per unit (2008)

Since naa nay rate per unit makuha na natong depletion. During 2008, nakaextract siyag 3,000,000 ka
tons ato ng itimes sa rate.

3,000,000 × 2.7 = 8,100,000 depletion for 2008

● 2009

As usual, iupdate dapat nato ang depletable amount

Depletable amount (2008) 27,000,000

Less : Depletion for past years (0 + 8,100,000)

Total depletable amount (2009) 18,900,000

Sunod natong buhaton is icompute si estimated output. Since ang formula for depletion rate kay
(depletable amount over estimated output)

Iadd nato si tons extracted during 2009 3,500,000 og tons remaining 2,500,000

3,500,000 + 2,500,000 = 6,000,000 estimated output

Since naa nay updated depletable amount og estimated output makuha na nato ang depletion rate for
2009.

18,900,000 ÷ 6,000,000 = 3.15 depletion rate per unit.

During 2009, nakaextract sila og 3,500,000 tons

3,500,000 tons × 3.15 rate per unit = 11,025,000 depletion 2009

DEPRECIATION EXPENSE FOR 2007-2009

According sa problem, si company nag construct shag building nga nag cost og 3,000,000 para iuse sa
mining operations. Fixed assets are to be depreciated.
Additionally gistate sad nga ang useful life sa building won't be useful once daw mahuman na silag
extract sa tanan natural resources sa kana nga property. (In short, si Building kay mag agad ra sad sa
years of mining operation, in this we will use the output method of depreciation)

■ 2007

Depreciation rate = cost sa asset or equipment over estimated output

3,000,000 ÷ 10,000,000 estimated output during 2007 = 0.3 depreciation rate

0 units extracted × 0.3 = 0 depreciation for 2007

■ 2008

First jud buhaton is iupdate ang carrying amount ni building.

Bulding, at cost 3,000,000

Less: Accumulated Depreciation for past years (0)

Carrying amount (2008) 3,000,000 ra japun since wala may depreciation pag 2007.

Unya pag 2008, sunod kay iadd nato ang tons extracted og tons remaining para makuha ang estimated
output.

3,000,000 + 7,000,000 = 10,000,000 estimated output

Then makacompute natas depreciation rate for 2008

3,000,000 ÷ 10,000,000 = 0.3

During 2008, nakaextract silag 3,000,000 tons

3,000,000 × 0.3 = 900,000 (depreciation expense for 2008)

■ 2009

First, update ang carrying amount sa building.

Bulding, at cost 3,000,000

Less: Accumulated Depreciation for past years 900,000

Carrying amount or remaning depreciable amount (2009) 2,100,000

Sunod icompute ang estimated output. By adding tons extracted and tons remaining.

3,500,000 + 2,500,000 = 6,000,000 estimated output.

Naa natay remaining depreciable amount og estimated output so macompute na nato ang new
depreciation rate per unit for 2009.

2,100,000 ÷ 6,000,000 = 0.35 ang depreciation rate per unit pag 2009

Sunod makuha ng depreciation. During 2009, nakaextract 3,500,000 tons

3,500,000 × 0.35 = 1,225,000 depreciation expense for 2009.

PROBLEM D - (Page 851-852)

Know the difference sa successful effort method og full cost method.

Successful effort method - kung binisay on pa, ang irecord ra nimo kay katong naay natural resources.
(Like sa imong property daghan manag yuta nga ukayonon, kato rang yuta nga giukay nimo niya naa kay
nakit an nga natural resources ang irecord as cost, katong uban nimong gasto sa pag ukay sa mga yuta
nga walay sud natural resources di ra nimo irecord as exploration cost)

Full cost method - tanan gasto nimo sa pag ukay pagpangita sa mga natural resources dapat irecord as
cost bisan pag wa kay nakuha or naa.

MOST PREFERABLE kay ang SUCCESFUL EFFORT METHOD.

__________

PROBLEM D

1st requirement is pila ang irecognized as exploration expense in 2009. According sa successful effort
method, those unsuccessful discovery is expensed in the period incurred.
Ingon sa problem project 2 and 5 ray successful. 1,3, and 4 are unsuccessful so kani sila nga project
maoy irecord nato as exploration expense during 2009.

Project 1 3,250,000

Project 3 4,230,000

Project 4 2,400,000

Total Exploration expense (2009) 9,880,000

2nd requirement how much daw ang icapitalized as cost of wasting asset since si 2 og 5 ray successful
sila ray icapitalized as exploration costs.

Project 2 - 1,780,000

Project 5 - 960,000

Total exploration costs 2,740,000

PROBLEM E

Pag 2012 - si company nipurchase og mineral mine, niya nakagasto siyag 20,000,000. Estimated daw
natural resources maextract sa kana nga mine kay 1,200,000 tons.

So first nato buhatonon ig kuhaon ang total cost sa wasting asset para makuha ang depletable amount.

Restoration cost - 1,800,000

Exploration cost - 6,400,000

Unya ana sad problem after nila maextract tanan natural resources. Pede pa sha mabaligya og
3,000,000. Kanang 3,000,000 mao na ang residual value.

So atoa ng kuhaon ang cost sa wasting asset (p. 850, 4 categories of the cost of wasting asset)

Acquisition Cost - 20,000,000

Exploration cost - 6,400,000

Restoration Cost - 1,800,000

(Walay development cost during 2012)

Total Cost of Wasting Asset 28,200,000

Less: Residual Value 3,000,000

Depletable Amount (2012) - 25,200,000

Since nakuha na natong depletable amount then given nasad ang estimated output makuha na natong
depletion rate per unit.

25,200,000 ÷ 1,200,000 = 21 depletion rate per unit (2012)

Since nanay depletion rate, makuha na nato ang depletion for year 2012. Ana sa problem during 2012,
nakaremove daw silag 300,000 tons.

300,000 tons × 21 per unit = 6,300,000 depletion (2012)

______

Sunod pinakalibog sa tanan, also stated sa problem nga before nagstart ang mining operations. Nag
install ang company og equipment niya nakagasto sha og 12,400,000 with useful life of 4 years. Usa
pasad nagpa construct pa siyag building niya nakagasto shag 9,600,000 with estimated useful life of 8
years.

Para makuha nato unsay depreciation method gamiton aning mga mining property. Need nato iapply
ang rule. (Page 856- 2nd paragraph-4th parahraph)

So sa problem need nato iapply ang rule for depreciation of mining property nga "whichever is shorter"

So first buhaton para makaproceed natag kuha sa depreciation expense is to identify the depreciation
method on each mining property since 2 mani kabuok.

Una kay kuhaon nato pilay useful life sa wasting asset

1,200,000 ÷ 300,000 (extracted resources during 2012) = 4 years

Building, 8 years > WA 4 years = output method

Equipment 4 years = WA 4 years (in this case they have the useful life, we would assume equipment as
the one who have shorter useful life.

In getting the WA useful life we are using an estimated output which could change over time) =
equipment will Straight Line Method.

Depreciation rate per unit for buiding (output method) : 9,600,000 / 1,200,000 = 8 per unit

Depreciation for Building (2012) = 8 × 300,000 nga naextract during 2012 = 2,400,000 depreciation of
bulding during 2012

Depreciation for Equipment (SL method) 12,400,000 - 0 / 4

= 3,100,000 depreciation of equipment (2012)

_________________

Sunod proceed natas year 2013. (Page 857 about shutdown) during 2013 wala daw output nakuha
tungods labor strike.

Since wala may production so wala rasay depletion. But there will still be depreciation.

2013 depletion 0 -> no production, no depletion

● 2013 DEPRECIATION

Building (output method)

Building, at cost 9,600,000

Less: Accumulated depreciation 2,400,000

Carrying Amount (or tawgaon remaining depreciable amount) 7,200,000 during 2013

Since no output man naproduce pag 2013 magbase tas iyahang remaining useful life. (Page 857 kanang
1st nga nakaslant araa maoy rule)

7,200,000 idivide sa nahibilin nga useful life niya (8-1 year) 7 years

7,200,000 ÷ 7 years = 1,028,571 depreciation of building on 2013

Sunod si equipment, since nagfollow naman daan siya sa straight line method. Dali nalang siya.

Equipment, at cost 12,400,000

Less: Accumulated Depreciation 3,100,000

Carrying Amount sa equipment during 2013 kay 9,300,000

Idivide na dayun na ang remaining useful life niya sa carrying amount (4-1 year) 3 years remaining.

9,300,000 divided by 3 years = 3,100,000 depreciation of equipment on 2013.

_________

● 2014 - DEPLETION

during 2014 as stated sa problem naay naincur nga additional development cost 1,120,000. And then
after daw extracting 600,000 tons of natural resources napay nahibilin estimated 1,000,000 tons.
As always need nato iupdate ang depletable amount every year. (Page 855 kaso lang dira way residual
value ang illustration maong murag di seym computation) since new naman ni nga year mausab nasad
iyahang depletion rate.

get the remaining depletable amount.

Depletable Amount (2013) 25,200,000

Additional Development Cost (2014 giacquire)

Total Cost of Wasting Asset = 26,320,000

Less: Depletion for past years (6,300,000 + 0) 6,300,000

Remaining Depletable amount 20,020,000

Karon pangitaon nasad nato ang remaining estimated output (remember problem C in ato japun
pamaagi)

Add tons extracted and tons remaining = estimated output

600,000 + 1,000,000 = 1,600,000 estimated output.

Since nana tay remaining depletable amount og estimated output. Makuha na natong depletion rate per
unit.

20,020,000 ÷ 1,600,000 = 12.51 (depletion rate per unit)

During 2014, nakaextract og 600,000 tons

12.51 × 600,000 tons = 7,506,000 depletion 2014.

CONTINUATION PROBLEM E

■ DEPRECIATION during 2014

Always and always jud iupdate ang carrying amount every year mapa depletion man or depreciation.
Unahon sa natog update ang building.

Building, at cost 9,600,000

Less: Accumulated depreciation sa past years (2,400,000 + 1,028,571) 3,428,571

Carrying Amount (2014) 6,171,429

Sunod buhaton is iupdatee ang amount sa output. (Kay output method raba si building)

Original estimate of deposit 1,200,000

Less: Extracted for past years (300,000 + 0) 300,000

Remaining estimate of deposit 900,000

Since naa natay updated carrying amount niya estimated output makuha na natong new depreciation
rate per unit ni building.

6,171,429 / 900,000 = 6.86 depreciation rate per unit

During 2014 nakaextract og 600,000 tons.

600,000 tons itimines sa depreciation rate 6.86 = 4,116,000 depreciation of bulding (2014)

Sunod kay si equipment nasad seym japun iupdate ang carrying amount niya ifollow kung unsa siya
method of depreciation. Equipment kay straight line so remaining useful life niya atong icompute after
maupdate ang carrying amount.

Equipment, at cost 12,400,000

Less: Accumulated Depreciation for past years (3,100,000 + 3,100,000) 6,200,000

Carrying amount (2014) 6,200,000

Para makuha ang remaining life sa equipment atoa rang iminus kung pila na kayears ang nilabay sa iyang
useful life.
4 years estimated useful life - 2 years (2012 og 2013) = 2 years remaining useful life

Makuha na natong depreciation sa equipment since update na atong carrying amount then nana tay
remaining useful life.

6,200,000 ÷ 2 years = 3,100,000 depreciation of equipment on 2014

REVALUATION

PROBLEM A