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Wasting Asset: IA 1 - J. Tamayao
Wasting Asset: IA 1 - J. Tamayao
IA 1 | J. Tamayao
EXPLORATION FOR AND EVALUATION ASSETS
Exploration for and evaluation of mineral resources means the
search for mineral resources, including minerals, oil, natural gas
and similar non-regenerative resources after the entity has
obtained legal rights to explore in a specific area, as well as the
determination of the technical feasibility and commercial viability
of extracting the mineral resource.
WASTING ASSET
Definition
Acquisition Cost
Exploration Cost
Development Cost
Restoration Cost
DEPLETION
Depletion is “depreciation” of natural resources. The depletion
base is the total cost of the property providing the natural
resources. This includes all development costs such as
exploring, drilling, excavating, and other preparatory costs.
DEPLETION
WIP xx
Accum. Depletion xx
COGS xx
WIP xx
EXAMPLE: DEPLETION
On January 1, 2019, CDH Co. acquired property containing mineral
resources for P150,000,000. Total costs of exploration and intangible
development costs was P8,000,000. CDHis mandated by the Mining
Act to restore the site after 4 years. Based on most reliable
measurement, the amount of restoration cost is P12,000,000 and
current market-based discount rate is 10%. Geologists estimate that
the total units estimated to be extracted is 12,000,000. It is estimated
that 1,500,000 units will be extracted each year during the useful life
of the wasting assets. Actual units extracted in 2019 and 2020 were
1,600,000 and 1,700,000, respectively.
CHANGE IN ESTIMATES
The unit depletion rate is frequently revised due to the
uncertainties surrounding the recovery of natural resources. The
adjustment is being made prospectively.
EXAMPLE: CHANGE IN ESTIMATE
On January 1, 2019, CDH Co. acquired property containing mineral
resources for P150,000,000. Total costs of exploration and intangible
development costs was P8,000,000. CDH is mandated by the Mining Act to
restore the site after 4 years. Based on most reliable measurement, the
amount of restoration cost is P12,000,000 and current market-based
discount rate is 10%. CDH estimates that the total units estimated to be
extracted is 12,000,000. It is estimated that 1,500,000 units will be
extracted each year during the useful life of the wasting assets. Actual units
extracted in 2019 and 2020 were 1,600,000 and 1,700,000, respectively.
By the end of 2020, CDH estimated the remaining recoverable reserves at
15,000,000. Actual units extracted on 2021 is 1,500,000.
DEPRECIATION OF PPE USED IN E&E
MOVABLE IMMOVABLE
No Future Use
Has Future Use
Life of the Asset is
Depreciate over the longer, unit of production
life of the asset method