HOMEWORK ON WASTING ASSETS AND DEPLETION

PROBLEM 1

In 2022, Annona Mining Inc. purchased property with natural resources for P20,000,000. The property was
relatively close to a large city and had an expected residual value of P2,000,000. However, Annona should restore
the land after the exhaustion of natural resources. The present value of the asset retirement obligation was
P880,000. Annona’ usual borrowing cost is 8%.

The following information relates to the use of the property:

a. In 2022, Annona spent P800,000 in development costs and P600,000 in buildings on the property. Annona
does not anticipate that the buildings will have any utility after the natural resources are depleted.
b. In 2023 and 2024, P600,000 and P1,600,000, respectively, were spent for additional development on the
mine.
c. The tonnage mined and estimated remaining tons for years 2022 to 2026 are as follows:

Year Tons Extracted Estimated Tons Remaining

2022 0 5,000,000
2023 1,500,000 3,500,000
2024 1,800,000 2,000,000
2025 1,700,000 900,000
2026 900,000 0

Based on the preceding information, calculate the depletion and depreciation each year from 2011 to 2026.

PROBLEM 2

Nickel Corp. was organized on January 2, 2024. It was authorized to issue 100,000 ordinary shares. On the date
of organization, it sold 20,000 shares at P100 per share and gave the remaining shares in exchange for certain
land-bearing recoverable ore deposits estimated by geologists at 1,000,000 tons. The property is deemed to have
a value of P15,000,000 with no residual value.

During 2024, purchases of mine buildings and equipment totaled P1,500,000. During the year, 150,000 tons were
mined; 60,000 tons of this amount were unsold on December 31, the balance of the tonnage being sold for cash at
P50 per ton. Expenses incurred and paid for during the year; exclusive of depletion and depreciation were as
follows:
Mining costs 600,000
Distribution costs 125,000
General and administrative 222,500

It is believed that buildings and equipment will be used only over the life of the mine.

1. Determine the cost per ton.

2. Determine the 2024 cost of goods sold.
3. Determine the cost of ore ending inventory.