Property, Plant and

Equipment Wasting
Assets
Relevant Standards
PAS 16 Property, Plant and
Equipment
PAS 37 Provisions, CL and CA
PFRS 6 Exploration for and
Evaluation of Mineral
Resources
Computation of Depletion
Method - Should reflect pattern of
benefit consumption, usually output
method

Output x Depletion rate = Depletion

Cost P xx
Residual value ( xx)
Amount subject to depletion xx
/Estimated reserves xx
Depletion rate xx
Costs of Wasting Assets
Acquisition

Exploration and evaluation

Development

Restoration
PFRS 6
Exploration for and Evaluation
of Mineral Resources
PFRS 6 permits an entity to develop
an accounting policy for exploration
and evaluation assets without
specifically considering the
requirements of paragraphs 11 and
12 of PAS 8.
Thus, an entity adopting PFRS 6 may
continue to use the accounting
policies applied immediately before
adopting the PFRS.
Methods used before PFRS 6
Successful efforts method
Cost of successful exploration Capitalized
Cost of unsuccessful exploration Expensed

Successful The technical feasibility and
commercial viability of extracting a mineral
resource are demonstrable

Full cost method
All exploration and evaluation expenditures are
capitalized
Key Definitions
Exploration for and evaluation of
mineral resources

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.
Examples of Exploration and
Evaluation Activities
acquisition of rights to explore
topographical, geological,
geochemical and geophysical
studies
exploratory drilling
trenching
sampling
activities in relation to evaluating
the technical feasibility and
commercial viability of extracting a
mineral resource
Key Definitions
Exploration and evaluation
expenditures
Expenditures incurred by an entity in
connection with the exploration for
and evaluation of mineral resources
before the technical feasibility and
commercial viability of extracting a
mineral resource are demonstrable.

Exploration and evaluation assets
Exploration and evaluation
expenditures recognized as assets
in accordance with the entitys
accounting policy.
Reclassification of Exploration
and Evaluation Asset
An exploration and evaluation asset
shall no longer be classified as such
when the technical feasibility and
commercial viability of extracting a
mineral resource are demonstrable.

Exploration and evaluation assets
shall be assessed for impairment,
and any impairment loss
recognized, before reclassification.
Development Cost
Intangible
e.g. Cost of drilling and construction of wells
Include in the cost of wasting asset

Tangible
e.g. Building and machinery and equipment
Recognize as separate asset

Depreciation method:
Same method for other PPE

If the problem is silent
Useful life > Life of WA Output
Useful life < Life of WA SL
Estimated Restoration Cost
Included when recognized as
provision. Therefore the
restoration cost must
- Be a present obligation,
- Represent a probable outflow of
economic resources, and
- Be measurable reliably
Presentation of Depletion
Unsold - Inventory

Sold Cost of sales
- PROBLEMS -
Acquisition cost P20,000,000
Est. restoration cost 2,000,000
Exploration cost 13,000,000
Development cost drilling 10,000,000
Total cost 45,000,000
Residual value ( 5,000,000)
Depletable amount 40,000,000
/Total est. reserves 5,000,000
Depletion rate P8/ton
Problem No. 1
Total depletion:
(600T x P8) P4,800,000

Depletion in COS:
(450T x P8) P3,600,000

Depletion in ending inventory:
(150T x P8) P1,200,000
Problem No. 1
Answer is letter C
Acquisition cost P 500,000
Successful exploration cost
(P1.5M x 1/3) 500,000
Total cost/DA 1,000,000
/Total est. reserves 2,000,000
Depletion rate P 0.5/oz
x Output 500,000 oz
Depletion for 2010 P 250,000
Problem No. 2
Answer is letter C
Acquisition cost P 800,000
Est. restoration cost
(P4.2M x PVF) ?
Problem No. 3
Present value factors
Present value of 1:
(1 + i)-
n

Used for single cash flow or series of unequal
cash flows

PV of ordinary annuity of 1:
1-(1 + i)-
n

i
Used for series of equal cash flows payable or
receivable at the end of each period

PV of annuity due (advance):
PV of ordinary annuity x (1+i)
Acquisition cost P 800,000
Est. restoration cost
(P4.2M x .3405) 1,430,100
Total cost/DA 2,230,100
/Total est. reserves 1,000
Depletion rate P2,230/ton
x Output 100 tons
Depletion for 2010 P 223,000
Problem No. 3
Answer is letter C
Problem No. 4

Approach

Present
Value

Prob.
Prob.
Weighted
Present Value
1
2
3

Approach

Present
Value

Prob.
Prob.
Weighted
Present Value
1 497
2
3

Approach

Present
Value

Prob.
Prob.
Weighted
Present Value
1 497 .1
2
3

Approach

Present
Value

Prob.
Prob.
Weighted
Present Value
1 497 .1 50
2
3

Approach

Present
Value

Prob.
Prob.
Weighted
Present Value
1 497 .1 50
2 9,938
3

Approach

Present
Value

Prob.
Prob.
Weighted
Present Value
1 497 .1 50
2 9,938 .2
3

Approach

Present
Value

Prob.
Prob.
Weighted
Present Value
1 497 .1 50
2 9,938 .2 1,988
3

Approach

Present
Value

Prob.
Prob.
Weighted
Present Value
1 497 .1 50
2 9,938 .2 1,988
3 149,066

Approach

Present
Value

Prob.
Prob.
Weighted
Present Value
1 497 .1 50
2 9,938 .2 1,988
3 149,066 .7

Approach

Present
Value

Prob.
Prob.
Weighted
Present Value
1 497 .1 50
2 9,938 .2 1,988
3 149,066 .7 104,346

Approach

Present
Value

Prob.
Prob.
Weighted
Present Value
1 497 .1 50
2 9,938 .2 1,988
3 149,066 .7 104,346
106,384
Cost of land P500,000
Decontamination cost 106,384
Total cost P606,384
Answer is letter A
Acquisition cost P20,000,000
Residual value ( 4,000,000)
Depletable amount 16,000,000
/Total est. reserves 5,000,000
Depletion rate - 2009 P 3.2/ton
x Output 500,000 tons
Depletion for 2009 P 1,600,000
Problem No. 5
Problem No. 5
Depletable amount P16,000,000
Depletion 2009 ( 1,600,000)
Remaining DA, 1/1/10 14,400,000
/Est. reserves, 1/1/10
(4.5M + 1.5M) 6,000,000
Depletion rate - 2010 P 2.4/ton
x Output 1.5M tons
Depletion - 2010 P 3,600,000
Answer is letter A
Problem No. 6
Acquisition cost P28M
Est. restoration cost 2M
Development cost 2008 1M
Development cost 2009 1M
Total cost 32M
Residual value ( 5M)
Depletable amount 27M
/Est. reserves 10M
Depletion rate - 2009 2.7
x Output 2009 3M
Depletion 2009 P8.1M
Problem No. 6
Depletable amount P27,000,000
Depletion 2009 ( 8,100,000)
Remaining DA, 1/1/10 18,900,000
/Est. reserves, 1/1/10
(3.5M + 2M) 5,500,000
Depletion rate - 2010 P 3.44/ton
x Output 3.5M tons
Depletion - 2010 P 12,040,000
Answer is letter B
Problem No. 7
Depreciation method:
Useful life > Life of WA Output
Useful life < Life of WA SL

Life of WA (1.2M/240T) = 5 years

Fixed installations:
Useful life 8 years; method Output

Equipment:
Useful life 4 years; method SL
Problem No. 7
Fixed installations:
DR = P9.6M/1.2M units
DR = P8/unit
(120,000 units x P8) P 960,000

Equipment
(P12.4M/4) 3,100,000

Total P4,060,000
Answer is letter A
Depreciable amount P15,000,000
Depreciation 1
st
yr.
(200,000 x P15) ( 3,000,000)
Remaining DA 12,000,000
Depreciation 2
nd
yr.
(P12M/5) ( 2,400,000)
Remaining DA 9,600,000
/Rem. est. reserves 800,000
Depreciation rate3
rd
yr. P 12/ton
x Output 300,000 tons
Depreciation 3
rd
yr. P 3,600,000
Problem No. 8
Answer is letter C
Retained earnings P10,000,000
Acc. Depletion 20,000,000
Total 30,000,000
Capital liquidated PY (15,000,000)
Depletion-E.I.
(20,000 x P50) ( 1,000,000)
Maximum P14,000,000
Problem No. 9
Answer is letter B
Journal entry
Retained earnings P10M
Capital liquidated 4M
Dividends payable P14M

-now do your STD-

Answers to STD-
1. B
2. B
3. C
4. C
5. D
6. C
7. A
8. A