DEPLETION: PROBLEM SOLVING:

1. The most common method of computing depletion is Use the following information for the next two questions:
a. Percentage depletion method
b. Decreasing charge method In 20x1, OBSTREPEROUS NOISY Mining Corp. acquired the
c. Straight line right to use 1,000 acres of land to mine for gold. The lease cost is
d. Production or output method ₱200,000,000, and the related exploration costs on the property
amounted to ₱40,000,000. It is the policy of OBSTREPEROUS Mining
2. Depletion expense
a. Is usually part of cost of goods sold. Corp. to capitalize all costs of exploration and evaluation of mineral
b. Includes tangible equipment in the depletable amount. resources. Intangible development costs of drilling, tunnels, shafts, and
c. Excludes intangible development cost from the depletable wells incurred before opening the mine amounted to ₱340,00,000. At
amount. the end of the mine’s economic useful life, OBSTREPEROUS Mining
d. Excludes restoration cost from the depletable amount. Corp. is required by legislation to restore the site. Estimated restoration
costs have a fair value of ₱20,000,000. OBSTREPEROUS Mining Corp.
3. Information needed to compute a depletion charge per unit
estimates that the mine will provide approximately 100,000,000 ounces
includes the
a. Amount of resources sold during the period. of gold. Actual ounce of gold mined in 20x2 totaled 300,000 ounces.
b. Cumulative amount of resources removed.
c. Estimated total amount of resources available for removal. 1. How much is the depletion charge in 20x2?
d. Amount of resources removed during the period.
a. 1,740,000
4. Which accurately describes the GAAP regarding the acounting for b. 1,800,000
the costs of drilling dry holes in the oil and gas industry? c. 165,000
a. Successful effort method d. 150,000
b. Full cost method
c. Both successful effort and full cost
d. Neither successful effort nor full cost method 2. Assuming that of the 300,000 ounces of gold extracted in 20x2,
280,000 ounces were sold and 20,000 ounces remain in inventory. How
5. Which of the following is not part of depletable amount? much depletion is recognized in the 20x2 (a) statement of financial
a. Acquisition cost of the mineral resource deposit
position and (b) statement of profit or loss and other comprehensive
b. Exploration cost
c. Tangible equipment used to extract the mineral resource income, respectively?
d. Intangible development cost such as drilling and tunnel
Statement of financial position Statement of profit or loss
6. Exploration and evaluation expenditures are incurred
a. When searching for an area that may warrant detailed a. 1,680,000 120,000
exploration even though the entity has not yet obtained the
legal rights to explore a specific area. b. 116,000 1,624,000
b. When the legal rights to explore a specific area have been
obtained but the technical feasibility and commercial c. 11,000 154,000
viability of extracting a mineral resource are not yet
demonstrable. d. 120,000 1,680,000
c. When a specific area is being developed and preparation, for
commercial extraction are being made.
d. In extracting mineral resource and processing the resource
to make it marketable or transportable. Use the following information for the next two questions:

7. When is an entity required to recognize exploration and
evaluation expenditure as an asset?
a. When such expenditure is recoverable in future periods.
b. When the technical feasibility and commercial viability of
extracting the associated mineral resource have been
demonstrated.
c. When required by the entity's accounting policy for
recognizing exploration and evaluation-asset.
d. Such expenditure is always expensed as incurred.
8. Which of the following expenditures would never qualify a8 an
exploration and evaluation asset?
a. Expenditure for acquisition of rights to explore
b. Expenditure for exploratory drilling
c. Expenditures related to the development of mineral resource
d. Expenditures for activities in relation to evaluating *
technical feasibility and commercial viability of extracting a
mineral resource
9. An entity is required to consider which of the following developing
accounting policy for exploration and evaluation activities?
a. The requirements and guidance in Standards and
Interpretations dealing with similar and related issue
b. The definitions, recognition criteria and measurement
concepts for assets, liabilities, income, and expenses
c. Recent pronouncements of standard-setting bodies
d. Whether the accounting policy results in information that is
relevant and reliable
10. Which of the following is not a disclosure required in relation to
exploration and evaluation expenditures?
a. Information about commercial reserve quantity
b. Accounting policy for exploration and evaluation
expenditures
c. The amounts of operating and investing cash flows
arising from exploration and evaluation of mineral
resources
d. Information recognized in the financial statements arising
from the exploration and evaluation of mineral resources
In 20x1, BUCOLIC RURAL Co. acquired land for a total cost of
₱40,000,000 to be used to quarry marble, limestone, and construction
aggregates. Costs incurred to obtain legal right to explore the property
amounted to ₱8,000,000. Expenditures incurred in the exploration for
and evaluation of mineral resources before technical feasibility and
commercial viability of extracting a mineral resource are demonstrable
totaled ₱12,000,000. Intangible development costs of drilling, tunnels,
shafts, and wells before the actual production totaled ₱20,000,000.
BUCOLIC Co. estimates that total recoverable reserves are 100,000,000
units. Furthermore, BUCOLIC Co. expects to sell the land for ₱4,800,000
after resource is depleted. However, no buyer will pay this price unless
the mine is drained, filled and leveled, a process that will cost ₱800,000.
It is BUCOLIC’s policy to capitalize all exploration costs.
Actual units quarried in 20x1 through 20x4 totaled
30,000,000 units. On January 1, 20x5, BUCOLIC Co. estimated that the
remaining recoverable reserves are only 25,000,000 units and after the
reserves are exhausted, the land will be sold for ₱3,200,000. Costs of
disposal are estimated at ₱1,200,000. Actual units quarried in 20x5
totaled 6,000,000 units.
3. How much is the depletion charge in 20x5?
e. 13,284,000
f. 13,480,000
g. 13,280,000
h. 13,248,000
4. What is the carrying amount of the wasting asset on December 31,
20x5?
a. 43,852,000
b. 44,272,000
c. 42,720,00
d. 43,952,000