Ambay, Fenladen C.

ACD – AEC12
TASK 2 July 16, 2021

Problem 1.
1. FALSE 6. TRUE
2. TRUE 7. TRUE
3. TRUE 8. TRUE
4. FALSE 9. FALSE
5. TRUE 10. TRUE

Problem 2.
7. Depletion of mineral resources
Requirements:
a. Depletion charge during the period.
SOLUTION:
Total cost of natural resource is computed as follows:
Purchase price of mineral rights ₱ 500,000
Exploration costs 500,000
Total cost of natural resource ₱ 1,000,000

Depletion rate per unit = Depletion base ÷ Total estimated deposits

Depletion rate per unit = ₱ 1,000,000 ÷ 2,000,000
Depletion rate per unit = 0.50

Depletion = Depletion rate per unit x Actual units extracted

Depletion = 0.50 x 500,000oz.
Depletion = 250,000

b. Depletion recognized as expense during the period.

SOLUTION:
Formula: Unit sold x Depletion rate per unit
= 300,000oz. sold x 0.50
= 150,000
300,000oz. sold
Alternative solution: 250,000 x = 150,000
500,000oz. extracted
8. Changes in estimates
Requirement: How much is the depletion in 20x3?
SOLUTION:
The total cost of natural resource is computed as follows:
Acquisition cost ₱ 10,000,000
Total cost of natural resource 10,000,000
Residual value (3,000,000)
Depletion base – 20x0 ₱ 7,000,000

Depletion rate per unit = Depletion base ÷ Total estimated deposits

Depletion rate per unit = ₱ 7,000,000 ÷ 10,000,000
Depletion rate per unit = 0.70

Accumulated depletion = Total units extracted x Depletion rate per unit

Accumulated depletion = 4,000,000 x 0.70
Accumulated depletion = 2,800,000

Cost of natural resource ₱ 10,000,000

Accumulated depletion 2,800,000
Carrying amount – Jan. 1, 20x3 7,200,000
Residual value (3,000,000)
Depletion base – 20x3 4,200,000
Divide: Revised recoverable reserves 7,500,000
Depletion rate per unit – 20x3 0.56
Multiply: Actual units extracted – 20x3 1,500,000
Depletion for 20x3 ₱ 840,000

9. Depreciation of mining equipment

Requirements:
a. Depletion for the year ended December 31, 20x1.
SOLUTION:
Acquisition cost ₱ 13,200,000
Total cost of natural resource 13,200,000
Residual value (400,000)
Depletion base ₱ 12,800,000

Depletion rate per unit = Depletion base ÷ Total estimated deposits

Depletion rate per unit = ₱ 12,800,000 ÷ 1,600,000
Depletion rate per unit = 8
Depletion = Depletion rate per unit x Actual units extracted
Depletion = 8 x 150,000 (25,000 x 6 months)
Depletion = 1,200,000

b. Depreciation for the year ended December 31, 20x1.

SOLUTION:
Life of immovable tangible equipment = 8 years
Life of mine in years = 5.33 years (*)
* Life of mine in years = Total estimated deposits ÷ Expected annual extraction
Life of mine in years = 1,600,000 ÷ 300,000 (25,000 x 12 months)
Life of mine in years = 5.33 years
Life of immovable tangible equipment is longer.
Cost of immovable tangible equipment (6,600,000 - 200,000) ₱ 6,400,000
Divided by: Total estimate deposits 1,600,000
Depreciation rate per unit 4

Depreciation = Depreciation rate per unit x Actual units extracted

Depreciation = 4 x 150,000 (25,000 x 6 months)
Depreciation = 600,000