Josephine Company acquired a tract of land containing an extractable natural resource.

The
entity is required by the purchase contract to restore the land to a condition suitable for
recreational use after it has extracted the natural resource.
Geological survey indicated that the recoverable reserves would be 2,500,000 tons and that the
extraction will be completed in five years.
Relevant cost of information follows:
Land 9,000,000
Exploration and development costs 1,000,000
Expected cash flow for restoration costs 1,500,000
Credit- adjusted risk-free interest rate 10%
PV of 1 at 10% for 5 periods 0.62
What is the depletion charge per ton of extracted material?
a. 4.00
b. 4.37
c. 3.97
d. 3.60

On January 1, 2016, Manika Company purchased land with valuable natural ore deposits for
P10,000,000. The residual value of the land was P2,000,000. At the time of purchase, a
geological survey estimated a recoverable output of 4,000,000 tons.
Early in 2016, roads were constructed on the land to aid in the extraction and transportation of
the mined ore at a cost of P1,600,000. In 2016, 500,000 tons were mined and sold.
A new survey at the end of 2017 estimated 4,200,000 tons of ore available for mining. In 2017,
800,000 tons were mined and sold.
1. What amount should be recognized as depletion for 2016.
a. 1,250,000
b. 1,200,000
c. 1,450,000
d. 1,000,000
2. What amount should be recognized as depletion for 2017.
a. 1,344,000
b. 1,920,000
c. 1,200,000
d. 1,600,000
In 2013, Sunflower Company acquired a silver mine in Eastern Mindanao. Because the mine is
located deep in the Mindanao frontier, the entity was able to acquire the mine for the low price of
P50,000.
In 2014, the entity constructed a road to the silver mine costing P5,000,000. Improvements and
other development costs made in 2014 costs P750,000
Because of the improvements to the mine and to the surrounding land, it is the estimated that the
mine can be sold for P600,000 when mining activities are complete.
During 2015, five buildings were constructed near the mine site to house the mine workers and
their families.
The total cost of the five buildings was P2,000,000. Estimated residual value is P200,000.
Geologists estimated that 4,000,000 tons of silver ore could be removed from the mine for
refining.
During 2016, the first year of operations, only 500,000 tons of silver ore were removed from the
mine.
However, in 2017, workers mined 1,000,000 tons of silver.
During the same year, geologists discovered that the mine contained 3,000,000 tons of silver ore
in addition to the original 4,000,000 tons.
Development costs of P1,300,000 were made to the mine early in 2017 to facilitate the removal
of the additional silver.
Early in 2017, an additional building was constructed at a cost of P375,000 to house the
additional workers needed to excavate the added silver. This building is not expected to have any
residual value.
1. What is the depletion for 2016?
a. 718,750
b. 650,000
c. 725,000
d. 643,750
2. What is the depletion of 2017?
a. 1,300,000
b. 1,525,000
c. 900,000
d. 700,000
3. What is the depreciation of buildings for 2016?
a. 250,000
b. 225,000
c. 318,750
d. 343,750
4. What is the depreciation of buildings for 2017?
a. 300,000
b. 450,000
c. 500,000
d. 290,000

In 2015, Newton Company paid P1,000,000 to purchase land containing total estimated 160,00
tons of extractable mineral deposits. The estimated value of the property after the mineral has
been removed is P200,000.
Extraction activities began in 2016, and by the end of the year, 20,000 tons had been recovered
and sold.
In 2017, geological studies indicated that the total amount of mineral deposits had been
underestimated by 25,000 tons.
During 2017, 30,000 tons were expected and 28,000 tons were sold.
What is the depletion rate per ton in 2017?
a. 4.24
b. 4.32
c. 4.85
d. 5.29