Chapter 16

Depletion of Mineral Resources

Chapter 16: Multiple choice – Computational (SET B) – (For classroom

instruction purposes)

Recognition of depletion in the financial statements

Use the following information for the next two questions:
In 20x1, OBSTREPEROUS NOISY Mining Corp. acquired the right to use 1,000
acres of land to mine for gold. The lease cost is ₱200,000,000, and the related
exploration costs on the property amounted to ₱40,000,000. It is the policy of
OBSTREPEROUS Mining Corp. to capitalize all costs of exploration and evaluation
of mineral resources. Intangible development costs for drilling, tunnels, shafts,
and wells incurred before opening the mine amounted to ₱340,00,000. At the end
of the mine’s economic useful life, OBSTREPEROUS Mining Corp. is required by
legislation to restore the site. Estimated restoration costs have a fair value of
₱20,000,000. OBSTREPEROUS Mining Corp. estimates that the mine will provide
approximately 100,000,000 ounces of gold. Actual ounce of gold mined in 20x2
totaled 300,000 ounces.

1. How much is the depletion charge in 20x2?

a. 1,740,000 b. 1,800,000 c. 165,000 d. 150,000

2. Assuming that of the 300,000 ounces of gold extracted in 20x2, 280,000

ounces were sold and 20,000 ounces remain in inventory. How much
depletion is recognized in the (a) statement of financial position and (b)
statement of profit or loss and other comprehensive income?
Statement of financial position Statement of profit or loss
a. 1,680,000 120,000
b. 116,000 1,624,000
c. 11,000 154,000
d. 120,000 1,680,000
Changes in estimates
Use the following information for the next two questions:
In 20x1, BUCOLIC RURAL Co. acquired land for a total cost of ₱40,000,000 to be
used to quarry marble, limestone, and construction aggregates. Costs incurred to
obtain legal right to explore the property amounted to ₱8,000,000. Expenditures
incurred in the exploration for and evaluation of mineral resources before
technical feasibility and commercial viability of extracting a mineral resource are
demonstrable totaled ₱12,000,000. Intangible development costs of drilling,
tunnels, shafts, and wells before the actual production totaled ₱20,000,000.
BUCOLIC Co. estimates that total recoverable reserves are 100,000,000 units.
Furthermore, BUCOLIC Co. expects to sell the land for ₱4,800,000 after resource
is depleted. However, no buyer will pay this price unless the mine is drained,
filled and leveled, a process that will cost ₱800,000. It is BUCOLIC’s policy to
capitalize all exploration costs.

Actual units quarried in 20x1 through 20x4 totaled 30,000,000 units. On January
1, 20x5, BUCOLIC Co. estimated that remaining recoverable reserves is only
25,000,000 units and after the reserves are exhausted, the land will be sold for
₱3,200,000. Costs of disposal are estimated at ₱1,200,000. Actual units quarried
in 20x5 totaled 6,000,000 units.

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3. How much is the depletion charge in 20x5?
a. 13,284,000 b. 13,480,000 c. 13,280,000 d. 13,248,000

4. What is the carrying amount of the wasting asset on December 31, 20x5?
a. 43,852,000 b. 44,272,000 c. 42,720,00 d. 43,952,000

5. In 20x1, INNOCUOUS HARMLESS Co. acquired land to be used to mine coal.

Total costs of acquisition, exploration, and intangible development amounted
to ₱40,000,000. It was estimated that total recoverable reserves is 50,000,000
units. Total units extracted from 20x1 through 20x4 totaled 30,000,000 units.
In 20x5, after extracting 5,000,000 units, it was estimated that the remaining
recoverable reserves is 20,000,000 units. How much is the depletion charge in
20x5?
a. 3,200,000 b. 3,333,333 c. 3,266,667 d. 3,400,000

Immovable tangible equipment with shorter life

Use the following information for the next three questions:
In 20x1, RIBALD OFFENSIVE Co. purchased real estate containing copper for a
total cost of ₱64,000,000. Exploration costs amounted to ₱4,000,000 and
intangible development costs of drilling, tunnels, shafts, and wells totaled
₱16,000,000. Movable tangible equipment costs for heavy equipment totaled
₱32,000,000 and immovable tangible equipment costs for drilling rig foundation
totaled ₱24,000,000.

Estimated recoverable reserves from the mine are 2,100,000 units. It is estimated
that 300,000 units will be extracted each year. The heavy equipment and the
drilling rig foundation have estimated useful lives of 10 years and 5 years,
respectively. Actual units extracted during 20x1 are 320,000 units.

6. How much is the 20x1 depreciation on the immovable tangible equipment?

a. 4,800,000 b. 3,428,571 c. 4,571,429 d. 3,200,000

7. How much is the 20x1 depletion of the natural resource?

a. 12,800,000 b. 16,428,571 c. 15,229,879 d. 14,679,097

8. How much is the 20x1 depreciation on the movable tangible equipment?

a. 3,428,571 b. 3,200,000 c. 4,800,000 d. 4,571,429

Immovable tangible equipment with longer life

Use the following information for the next three questions:
In 20x1, DIAPHANOUS TRANSPARENT Co. purchased real estate containing
copper for a total cost of ₱64,000,000. Exploration costs amounted to ₱4,000,000
and intangible development costs of drilling, tunnels, shafts, and wells totaled
₱16,000,000. Movable tangible equipment costs for heavy equipment totaled
₱32,000,000 and immovable tangible equipment costs for drilling rig foundation
totaled ₱24,000,000.

Estimated recoverable reserves from the mine are 2,100,000 units. It is estimated
that 300,000 units will be extracted each year. The heavy equipment and the
drilling rig foundation have estimated useful lives of 20 years and 10 years,
respectively. Actual units extracted during 20x1 are 320,000 units.

9. How much is the depreciation on the immovable tangible equipment?

a. 3,657,600 b. 3,480,000 c. 3,460,800 d. 3,260,800

10. How much is the depletion on the natural resource?

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 a. 12,832,677 b. 11,988,322 c. 13,489,00 d. 12,800,000

11. How much is the depreciation on the movable tangible equipment?

a. 1,573,290 b. 1,620,000 c. 1,613,890 d. 1,600,000

No production in a period
Use the following information for the next two questions:
In 20x1, THRALL SLAVE Co. purchased real estate containing copper for a total
cost of ₱40,000,000. Immovable tangible equipment costs for drilling rig
foundation totaled ₱20,000,000. Estimated recoverable reserves from the mine
are 1,000,000 units. It is estimated that 100,000 units will be extracted each year;
therefore, the life of the mine in years is 10 years. The drilling rig foundation has
an estimated useful life of 15 years.

Actual units extracted from 20x1 through 20x3 totaled 340,000 units. No units
were extracted during 20x4 due to an employee strike. Extraction resumed in
20x5 and total units extracted during that year was 80,000 units.

12. How much is the depreciation charge on the immovable tangible equipment
in 20x4?
a. 980,967 b. 1,090,800 c. 1,100,000 d. 1,200,000

13. How much is depreciation charge on the immovable tangible equipment in

20x5?
a. 1,400,000 b. 1,466,667 c. 1,500,000 d. 1,600,000

Liquidating dividends
14. MYNHEER MISTER Co. has the following balances in its accounts as of
December 31, 20x1:
Resource deposit – coal mine 40,000,000
Accumulated depletion 16,000,000
Ordinary share capital 80,000,000
Capital liquidated 8,000,000
Unappropriated retained earnings 20,000,000
Inventory (600,000 units) 28,000,000
Depletion rate per unit 6.00 per unit

How much is the maximum amount that can be declared as dividends?

a. 24,400,000 b. 32,400,000 c. 28,000,000 d. 31,600,000

Restoration and decommissioning costs – Wasting asset

In 20x1, MULIEBRITY FEMINITY Mining Corp. acquired the right to use 1,000
acres of land to mine for gold. The lease cost is ₱200,000,000, and the total costs
of exploration and intangible development costs are ₱40,000,000. MULIEBRITY is
required by environmental laws to restore the site after 5 years. MULIEBRITY’s
best estimate for the restoration cost is ₱20,000,000 and current market-based
discount rate is 12%. Total deposits expected to be extracted is 13,000,000
ounces. Actual ounces extracted in 20x1 and 20x2 are 2,700,000 and 2,600,000,
respectively.

15. How much is the initial carrying amount of the mineral deposit?
a. 24,143,840 b. 251,348,540 c. 251,764,540 d. 256,340,540

16. How much is the depletion in 20x1?

a. 52,191,000 b. 52,260,000 c. 53,140,000 d. 54,164,000

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17. How much is the interest expense in 20x2?
a. 1,361,824 b. 1,198,406 c. 1,421,266 d. 1,525,244

Restoration and decommissioning costs – Equipment

Use the following information for the next three questions:
On January 1, 20x1, DEMULCENT EMBARRASSING Co. acquired an oil rig for
₱400,000,000. Installation and other necessary costs in bringing the equipment
to its intended condition for use totaled ₱80,000,000. DEMULCENT Co. uses the
straight line depreciation method. DEMULCENT is required by law to dismantle
the equipment and restore the site where it is installed after 20 years, the end of
the equipment’s useful life. The estimated decommissioning and restoration costs
are ₱40,000,000. The imputed rate of interest is 12%.
18. How much is the initial cost of the equipment?
a. 475,853,328 b. 480,000,000 c. 400,000,000 d. 484,146,672

19. How much is the depreciation expense in 20x2?

a. 23,792,666 b. 24,000,000 c. 20,000,000 d. 24,207,332

20. How much is the interest expense in 20x2?

a. 248,800 b. 437,889 c. 557,312 d. 665,443

Estimating fair value of ARO

Use the following information for the next two questions:
On January 1, 20x1, VERITY FIRMNESS Mining Company purchased a quartz
mine for ₱40,000,000 that it intends to work for the next 10 years. According to
environmental laws, VERITY must restore the mine site to its original natural
prairie state after it ceases mining operations at the site.

There is no active market for retirement obligations such as these but VERITY
has been able to develop cash flow estimates based on its prior experience in
mining-site restoration. It will take 3 years to restore the mine site when mining
operations cease in 10 years. Each estimated cash outflow reflects an annual
payment at the end of each year of the 3-year restoration period. The current
market-based rate is 12%.

VERITY made the following estimates of future cash flows for the restoration
cost:
Restoration estimated cash outflow Probability assessment
8,000,000 10%
14,000,000 15%
16,000,000 50%
16,800,000 25%
100%

21. How much is the initial cost of the mine?

a. 51,677,212 b. 51,879,233 c. 51,986,412 d. 52,108,922

22. How much is the interest expense in 20x2?

a. 1,233,114 b. 1,569,416 c. 1,667,892 d. 1,678,612

Changes in estimates of Restoration costs

Use the following information for the next two questions:
On January 1, 20x1, PRECIPITOUS STEEP Co. acquired a quarry for ₱400,000,000.
PRECIPITOUS Co. is required by law to restore the site after 5 years. The
estimated restoration costs are ₱40,000,000. The imputed rate of interest is 12%.

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On January 1, 20x4, PRECIPITOUS Co. estimated that the restoration costs should
be ₱48,000,000 and the imputed rate of interest is 10%.

23. How much is the interest expense in 20x2?

a. 2,723,648 b. 2,396,811 c. 3,050,488 d. 3,155,341

24. The entry on January 1, 20x4 to adjust Asset retirement obligation (ARO)
includes
a. debit to retained earnings for ₱7,781,664
b. debit to ARO for ₱7,781,664
c. debit to “resource deposit – quarry” for ₱7,781,664
d. credit to “resource deposit – quarry” for ₱7,781,664

The answers and solutions to the computational problems above

(Multiple choice – Computational (SET B) can be found in the
accompanying Teacher’s Manual.

Chapter 16: Theory of Accounts Reviewer

1. PFRS 6 is applied to which of the following?
a. the search for mineral resources before the entity has obtained legal rights
to explore in a specific area.
b. the search and evaluation of mineral resources, agricultural produce, and
biological assets prior to commencement of actual production
c. the search for mineral resources after the entity has obtained legal rights
to explore in a specific area.
d. the development of mineral resources after the entity has in fact
established the existence of mineral deposits in an area.

2. PFRS 6 applies to expenditures incurred

a. When searching for an area that may warrant detailed exploration, even
though the entity has not yet obtained the legal rights to explore a specific
area.
b. When the legal rights to explore a specific area have been obtained, but
the technical feasibility and commercial viability of extracting a mineral
resource is not yet demonstrable.
c. When a specific area is being developed and preparations for commercial
extraction are being made.
d. In extracting mineral resources and processing the resource to make it
marketable or transportable.
(Adapted)

3. PFRS 6
a. shall be applied by all entities adopting full PFRSs
b. shall be applied only by entities engaged in agricultural activity
c. temporarily exempts entities in applying some provisions in PAS 8
d. when adopted, shall replace PAS 16

4. It refers to the activities geared towards the search for mineral resources
after the entity has obtained legal rights to explore in a specific area
a. exploration and evaluation c. probe and investigation
b. development d. adventure and conquest

5. Does PFRS 6 require an entity to recognize exploration and evaluation

expenditure as assets?

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 a. Yes, but only to the extent such expenditure is recoverable in future
periods.
b. Yes, but only to the extent the technical feasibility and commercial
viability of extracting the associated mineral resource have been
demonstrated.
c. Yes, but only to the extent required by the entity’s accounting policy for
recognizing exploration and evaluation assets.
d. No, such expenditure is always expensed in profit or loss as incurred.
(Adapted)

6. Which of the following is incorrect in relation to the provisions of PFRS 6?

a. Exploration and evaluation expenditures start to be incurred only after
the legal right to explore a specific area is obtained.
b. Exploration and evaluation expenditures cease to be incurred when the
existence of reserves is in fact established.
c. PFRS 6 permits entities to develop their own accounting policy for
exploration and evaluation assets based entirely on management’s
judgment.
d. Although PFRS 6 permit entities to develop their own accounting policy,
the management of an entity should comply with the provision of PAS 8 on
hierarchy of standards when developing accounting policy for exploration
and evaluation of mineral resources.

7. What is an entity required to consider in developing accounting policies for

exploration and evaluation activities?
a. The requirements and guidance in Standards and Interpretations dealing
with similar and related issues.
b. The definitions, recognition criteria, and measurement concepts for assets,
liabilities, income, and expenses in the Conceptual Framework.
c. Recent pronouncements of standard-setting bodies, accounting literature,
and accepted industry practices.
d. Whether the accounting policy results in information that is relevant and
reliable.
(Adapted)

8. Expenditures incurred after the existence of reserves is in fact established in a

specific area but before commencement of commercial production are called
a. exploration and evaluation expenditures
b. development expenditures
c. extraction costs
d. cost of drilling rig foundation and sewers

9. Which of the following is in accordance with the provisions of PFRS 6?

a. PFRS 6 applies even before an entity has obtained legal rights to explore in
a specific area.
b. Exploration and evaluation expenditures start to be incurred only before
the legal right to explore a specific area is obtained.
c. Exploration and evaluation expenditures start to be incurred when the
existence of reserves is in fact established.
d. PFRS 6 permits entities to develop their own accounting policy for
exploration and evaluation assets which results in relevant and reliable
information based entirely on management’s judgment.

10. Under PFRS 6, exploration and evaluation assets shall be initially measured at
a. cost b. fair value c. amortized cost d. any of these

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11. Which of the following correctly relates to the provisions of PFRS 6?
I. Exploration and evaluation assets shall be measured at cost, fair value, or
amortized cost, whichever is more appropriate.
II. Exploration and evaluation assets are exploration and evaluation
expenditures recognized as assets in accordance with the entity’s
accounting policy. Nothing in PFRS 6 overrides the accounting policy
developed by an entity.
III. After recognition, an entity shall apply either the cost model or the
revaluation model to the exploration and evaluation assets.
IV. After recognition, an entity shall apply either the cost model or the fair
model to the exploration and evaluation assets.
a. II, III b. I, II, III c. I, III, IV d. I, II, III, IV

12. Under PFRS 6, an entity may change its accounting policies for exploration
and evaluation expenditures
a. If the change is required or permitted under the standards
b. If the change is required or permitted under the standards and not
prohibited by a relevant regulation
c. if the change makes the financial statements more relevant and no less
reliable, or more reliable and no less relevant.
d. If the change makes the financial statements more relevant or more
reliable

13. Is an entity ever required or permitted to change its accounting policy for
exploration and evaluation expenditures?
a. Yes, entities are required to change their accounting policy for these
expenditures if the change would result in more useful information for
users of financial statements.
b. Yes, entities are free to change accounting policy for these expenditures as
long as the selected policy results in information that is relevant and
reliable.
c. Yes, but only if the change makes the financial statements more relevant
to the economic decision-making needs of users and no less reliable, or
more reliable and no less relevant to those needs.
d. No, entities would be permitted to change accounting policy only on
adoption of a new or revised Standard that replaces the existing
requirements in PFRS 6.
(Adapted)

14. According to PFRS 6, an entity shall classify exploration and evaluation assets
as
a. tangible or intangible according to the nature of the assets
b. depreciable or non-depreciable according to the nature of the assets
c. exploration and development
d. movable or immovable

15. An exploration and evaluation asset

a. shall be measured initially and subsequently at cost less any accumulated
depreciation and impairment loss but shall not be measured at revalued
amount.
b. shall never be subsequently restated at revalued amount
c. shall continue to be classified as such until commercial production
commences.
d. shall no longer be classified as such when the technical feasibility and
commercial viability of extracting a mineral resource are demonstrable.

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16. These assets are physically consumed and are irreplaceable.
a. consumable c. wasting assets (natural resources)
b. bearer d. a or c

17. The cost of natural resources include

I. acquisition costs
II. exploration costs to the extent that they are capitalized in accordance with
an entity’ accounting policy
III. intangible development costs
IV. restoration or decommissioning costs.
a. I, II b. I, II, III c. I, II, IV d. I, II, III, IV

18. Which of the following expenditures would never qualify as an exploration

and evaluation asset?
a. Expenditure for acquisition of rights to explore.
b. Expenditure for exploratory drilling.
c. Expenditures related to the development of mineral resources.
d. Expenditure for activities in relation to evaluating the technical feasibility
and commercial viability of extracting a mineral resource.
(Adapted)

19. Which measurement model applies to exploration and evaluation assets

subsequent to initial recognition?
a. The cost model. c. either a or b
b. The revaluation model. d. The recoverable amount model.
(Adapted)

20. Which of the following facts or circumstances would not trigger a need to test
an evaluation and exploration asset for impairment?
a. The expiration - or expected expiration in the near future -of the period
for which the entity has the right to explore in the specific area, unless the
right is expected to be renewed.
b. The absence of budgeted or planned substantive expenditure on further
exploration and evaluation activities in the specific area.
c. A decision to discontinue exploration and evaluation activities in the
specific area when those activities have not led to the discovery of
commercially viable quantities of mineral resources.
d. Lack of sufficient data to determine whether the carrying amount of the
exploration and evaluation asset is likely to be recovered in full from
successful development or by sale.
(Adapted)

21. Tangible development costs (tangible equipment costs) costs

a. are accounted for under PFRS 6
b. are capitalized as cost of natural resource and depreciated over the
economic life of the natural resource
c. are not capitalized as cost of natural resource but capitalized as
equipment and depreciated separately.
d. are development costs with no physical substance but nevertheless
treated as part of wasting asset because of the application of substance
over form

22. Tangible development (equipment) costs are sub-classified into movable or

immovable for purposes of subsequent depreciation. Which of the following
statements is correct?

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 I. Movable tangible equipment costs such as heavy equipment used from
one extracting site to another are depreciated separately over their useful
life.
II. Immovable tangible equipment costs such as drilling rig foundation are
depreciated separately over their useful life or the life of the resource,
whichever is shorter.
III. If the useful life of the immovable tangible equipment is shorter than the
economic life of the mine, units-of-production method should be used to
depreciate the equipment’s cost.
IV. If the useful life of the immovable tangible equipment is longer than the
economic life of the mine, no depreciation is recognized during a period
where there are no extraction activities.
a. I, II b. III, IV c. I, II, IV d. I, II, III, IV

23. Depletion is normally computed using

a. straight line c. units-of-production
b. SYD d. any of these

24. The depletion charge for each period

a. is expensed immediately
b. shall form part of operating expense when the extracted goods are sold
c. shall initially form part of the cost of inventory and charged to expense
when the inventory is sold.
d. shall be presented in the statement of financial position until mineral
resources are fully depleted

25. Changes in residual value or estimated quantity of mineral reserves are

a. changes in accounting estimates accounted for prospectively.
b. changes in accounting estimates accounted for retrospectively.
c. changes in accounting policy accounted for prospectively.
d. changes in accounting policy accounted for retrospectively.

26. Liquidating dividends received by a shareholder in a wasting asset

corporation
a. are return to capital and thus treated as reduction to investment account
b. are return of capital and thus treated as income
c. are return on capital and thus treated as income
d. are return of capital and thus treated as reduction to investment account

27. Provisions for restoration and decommissioning costs

a. are recognized only when the entity incurs legal obligation
b. are recognized only when the entity incurs present obligation
c. are recognized as a separate asset if the entity incurs present obligation
d. are recognized as part of the cost of an asset only if the entity has legal
obligation.

28. Which of the following is correct regarding the accounting for provisions for
decommissioning and restoration costs?
I. The amount of decommissioning or restoration costs to be included as
part of the cost of an asset is the fair value of the estimated liability as of
initial recognition.
II. The provision shall be the best estimate of the expenditure required to
settle the present obligation.
III. The fair value of the obligation for restoration and decommissioning cost
is recorded under “Asset retirement obligation” (ARO) with a
corresponding debit to the related asset for the same amount.

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IV. Periodic unwinding of the discount on the liability recognized for the
decommissioning or restoration cost shall be recognized in profit or loss
as a finance cost as it occurs.
V. Periodic unwinding of the discount on the liability does not affect
depletion or depreciation recognized for the period.
a. I, II, III b. I, II, IV c. I, II, III, IV d. I, II, III, IV, V

29. In the full cost method, oil firms:

a. are required to expense all oil-drilling costs resulting in dry holes.
b. must expense drilling costs which result in productive oil wells.
c. can capitalize all oil-drilling costs.
d. shall not reduce costs below their recoverable amounts

30. For charging depreciation, on which of the following assets is depletion

method adopted?
a. plant and machinery c. patents
b. goodwill d. wasting assets

31. Which of the following incorrectly refer to accounting for property, plant and
equipment?
I. Land improvements should never be depreciated since they are attached
to the land.
II. The cost of original installation of a machine should be credited to a
machinery account.
III. Natural resources are generally recorded at cost, including the cost of
exploration and development.
IV. In calculating depletion for a period, the residual value of acquired land
containing an ore deposit should be deducted from the total purchase
price.
V. If property, plant and equipment are stated at current valuation, the
financial position and progress of an enterprise will be more realistically
portrayed. The impression that the company is more profitable than what
it really is, is avoided.
a. III, IV, V b. I, II, V c. II, III, IV, V d. I, II

32. Development costs are divided into tangible equipment and intangible
development costs. The intangible development costs are generally
considered as part of the depletion base while tangible equipment are
normally not included in the depletion base.
I. Tangible equipment that can be moved and be used from one site to
another should be depreciated over their useful life or the life of the
wasting asset whichever is shorter.
II. Tangible equipment that cannot be moved and does not have alternative
use (cannot be used from one site to another) should be depreciated over
their useful life or the life of the wasting asset whichever is shorter.
a. True, true b. True, false c. False, true d. False, false

33. Development costs represent

a. the price paid to obtain the property right to search and find an
undiscovered natural resource
b. the costs incurred in extracting or exploiting the natural resource
c. the costs incurred in locating the natural resource that can be
economically extracted
d. the costs incurred to bring back the wasting asset to its natural state after
extraction has occurred
(AICPA)

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34. Which of the following models may be applied by entities for the
measurement after recognition of exploration and evaluation assets, in
accordance with PFRS6 Exploration for and evaluation of mineral resources?
a Cost d. Present value
b. Revaluation e. a or b
c. Realization
(ACCA)

35. Does PFRS6 Exploration for and evaluation of mineral resources apply to the
following types of expenditure?
I. The extraction and processing of mineral resources for transport to
market.
II. The commercial review of possible areas for mineral extraction before
bidding for the legal rights to explore a specific area.
a. No, no b. No, Yes c. Yes, No d. Yes, yes

36. The Strider Company is involved in the exploration for mineral resources. Its
policy is to recognize exploration assets and measure them initially at cost. It
is currently exploring a new gas field in Ruritania. The exploration license for
the new Ruritanian gas field is about to expire and Strider is now preparing to
undertake an impairment review. Strider reports its financial performance as
'Mineral Production' and 'Energy Trading' in its financial statements in
accordance with PFRS8 Operating segments. The Mineral Production segment
comprises two cash-generating units – 'oil production' and 'gas production'.
In accordance with PFRS 6 Exploration for and evaluation of mineral resources,
what is the highest level at which the impairment test can be undertaken?
a. A cash-generating unit based on the assets in the Ruritanian gas field
b. Gas production cash-generating unit
c. Oil production and gas production cash-generating units combined
d. A cash-generating unit at The Strider Company level
(ACCA)

37. Which of the following is not a disclosure required by PFRS 6?

a. Information about commercial reserve quantities.
b. Accounting policies for exploration and evaluation expenditures, including
the recognition of exploration and evaluation assets.
c. The amounts of assets, liabilities, income and expense, and operating and
investing cash flows arising from the exploration for and evaluation of
mineral resources.
d. Information that identifies and explains the amounts recognized in the
financial statements arising from the exploration for and evaluation of
mineral resources.
(Adapted)

38. Under which of the following methods is depreciation computed in the same
way as depletion is computed?
a. Straight-line c. Double-declining-balance
b. Sum-of-the-years-digits d. Productive-output
(AICPA)

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Chapter 16 – Suggested answers to theory of accounts questions
1. C 6. D 11. A 16. C 21. C 26. D 31. D 36. C
2. B 7. D 12. C 17. D 22. A 27. B 32. C 37. A
3. C 8. B 13. C 18. C 23. C 28. D 33. B 38. D
4. A 9. D 14. A 19. C 24. C 29. C 34. E
5. C 10. A 15. D 20. D 25. A 30. D 35. A

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