NATURAL

RESOURCES
SUBMITTED BY;
GROUP 1

BBA/3-B

SUBMITTED TO; MA'AM HIRA IDREES

• Resources supplied by
Nature. . .
• Natural resources
represent inventories of
raw materials that can
be consumed
(exhausted) through
extraction or removal
from their natural
setting .
Characteristics of Natural Resources:

• They are physically extracted and operations such as

mining, cutting or pumping.
• They are replaceable by an act of nature. because of
these characteristics natural resources are called
wasting assets
Example:

 If we purchased an ore mine for $650,000 cash

and we determined the land value was $50,000
and the Ore Deposit value was $600,000, the entry
would be:

Debit Credit
Land $50,000
Ore Deposit $600,000
Cash $650,000
Depletion:

 When dealing with natural resources, such as

timber, minerals and oil instead of depreciation
and amortization, depletion is used.
 Depletion is used with in the accrual basis of
accounting, and it is the actual physical
reduction of the natural resources.
Classification

On the balance sheet, we Balance Sheet

classify natural  Current Assets
resources as a separate
group among  Non- Current Assets
noncurrent assets  Timber Stands
under headings such  Oil Reserves
as “Timber stands”
and “Oil reserves”.
Example
 Fitzee co. invests 5,000,000 on June 1 in a
mine estimated to yield 10,000,000 tones
of coal. It has 200,000 residual value. To
restore the site after coal has been
extracted $500,000 will be required. In
the first 3 months, 800,000 tones of coal
is extracted and sold. Make the adjusting
journal entry if the year end is on Aug 31.
AMORTIZATION EXPENSE:
TOTAL COST – RESIDUAL VALUE + RESTORATION COST x NO. OF UNITS SOLD
TOTAL ESTIMATED UNITS
(5M – 200,000 + 500,000) x 800,000 = $424,000
10,000,000

ACCUMULATED AMORTIZATION:
TOTAL COST – RESIDUAL VALUE x NO. OF UNITS SOLD
TOTAL ESTIMATED UNITS
(5M – 200,000) x 800,000 = $384,000
10M

LIABILITY FOR RESTORATION:

RESTORATION COST x NO. OF UNITS SOLD
TOTAL ESTIMATED UNITS
500,000 x 800,000 = $40,000
10M
 Example
ANNUAL AMORTIZATION EXPENSE: $424,000
GENERAL ENTRY

Date Participants Debit Credit

Aug 31 Amortization Expense 424,000
Accumulated amortization expense 384,000
Liability for restoration 40,000
To record amortization exp on coal deposits