Chapter 17

Depletion of Mineral Resources

PROBLEM 1: TRUE OR FALSE

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

PROBLEM 2: FOR CLASSROOM DISCUSSION

1. B
2. C
3. D
4. C
5. C
6. D

7. Solutions:
Requirement (a):
500,000 + 500,000 = 1,000,000 x 500/2,000= 250,000

Requirement (b):
250,000 x (300,000 oz. sold / 500,000 oz. extracted) = 150,000

8. Solution:
 (10M – 3M) x 6/10 + 3M = 7,200,000 carrying amount on Jan. 1, 20x3;
 (7.2M – 3M residual value) = 4.2M new depletion base x 1.5M/7.5M =
840,000

9. Solutions:
Requirement (a):
(13.2M – 400K) x [(25K x 6 months) / 1.6M] = 1,200,000

Requirement (b):
 1,600,000 / (25,000 x 12mos.) = 5.33 years life of the mine
 5.33 years life of the mine vs. 8-year life of equipment

1
 Since the life of the mine is shorter than the life of the equipment, the
output method is used in computing depreciation.

 (6.6M – 200K)/ x [(25K x 6 months) / 1.6M] = 600,000

PROBLEM 6: MULTIPLE CHOICE - COMPUTATIONAL

1. B
Solution:

Purchase cost of mine 2,640,000

PV of restoration costs 180,000
Development costs 360,000

Residual value (300,000)

Depletion base 2,880,000

Estimated reserves 1,200,000

Depletion rate 2
Actual tons extracted 60,000
Depletion 144,000

2. C

Purchase cost of mine 7,200,000

Development costs 2,160,000

Residual value (720,000)

Depletion base 8,640,000

Estimated reserves 4,320,000

Depletion rate 2
Tons sold 480,000
Depletion in COGS 960,000

3. A
Solution:
1,000,00
Purchase cost of mine 0
Accumulated depletion - 1/1/x3 (100,000

2
 )
900,00
Carrying amount - 1/1/x3 0
(200,000
Residual value )
Revised depletion base - 1/1/x3 700,000
Revised estimate of reserves a 165,000
Revised depletion rate - 20x3 4.24

a
The revised estimate of reserves is computed as follows:
Original estimate of reserves 160,000
Understatement of total estimate 25,000
Tons extracted in 20x2 (20,000)
Remaining reserves - 1/1/x3 165,000

4. C
Solution:
Retained earnings 600,000
Cash dividends declared (800,000)
Liquidating dividends (200,000)

5. B (₱9M + ₱1.5M – ₱1M) ÷ 2.5M tons = 3.8