DEPLETION

A Cost

Which of the following models may be applied by entities for the measurement after recognition of
exploration and evaluation assets, in accordance with IFRS6 Exploration for and evaluation of mineral
resources?

A. Cost

B. Revaluation

C. Realization

D. Present Value

A IFRS6 does not apply IFRS6 does not apply

Does IFRS6 Exploration for and evaluation of mineral resources apply to the following types of
expenditure?

(1) The extraction and processing of mineral resources for transport to market

(2) The commercial review of possible areas for mineral extraction before bidding for the legal rights to
explore a specific area.

Expenditure (1) Expenditure (2)

a. IFRS6 does not apply IFRS6 does not apply

b. IFRS6 does not apply IFRS6 does apply

c. IFRS6 does apply IFRS6 does not apply

d. IFRS6 does apply IFRS6 does apply

C Oil production and gas production cash generating units combined

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 the Strider is
now preparing to undertake an impairment review. Strider reports its financial performance as 'Mineral
Production' and 'Energy Trading' in its financial statement in accordance with IFRS8 Operating segments.
The mineral Production segment comprises two cash generating units- Oil production and gas
production. In accordance with IFRS6 Exploration 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 ruritarian 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

C 3,600,000

Zambales Company acquired property in 2016 which contains mineral deposit. The acquisition cost of
the property was P20,000,000. Geological estimates indicate that 5,000,000 tons of mineral may be
extracted. It is further estimated that the property can be sold for 5,000,000 following mineral
extraction. For 2,000,000 Zambales is legally required to restore the land to a condition appropriate for
resale. After acquisition, the following cost were incurred:

Exploration cost 13,000,000

Development cost related

to drilling wells 10,000,000

Development cost related to production equipment 15,000,000

The company extracted 600,000 tons of the mineral in 2016 and sold 450,000 tons. In the 2016 income
statement, what amount of depletion is included in cost of sales?

A. 4,800,000 C. 3,600,000

B. 5,400,000 D. 4,050,000

C 250,000

Natural, Incorporated embarked on a new venture in Northern Luzon in 2016. It expects to glean
2,000,000 ounces of a precious ore from its holdings there, over several years. Relevant data follows:

Cost of Mineral Rights 500,000

Exploration Cost, 2016

(1/3 successful) 1,500,000

Extraction Cost, 2016 2,000,000

Ore extracted, 2016 500,000 oz

Ore sold, 2016 300,000 oz

What is depletion for 2016, using the successful efforts method of accounting for exploration costs?

A. 350,000 C. 250,000
B. 300,00 D.150,000

C 223,000

On January 1, 2016 Major Company purchased a uranium mine for 800,000. On that date, Major
estimated that the mine contained 1,000 tons of ore. At the end of the productive years of the mine,
Major Company will be required to spend 4,200,000 to clean up the mine site. The appropriate discount
rate is 8% and it is estimated that it will take approximately 14 years to mine all of the one. Major uses
the productive-output method of depreciation. During 2016, Major extracted 100 tons of ore from the
mine. Compute the amount of depletion for 2016

A. 114, 408 C. 223,000

B. 80,000 D. 500,000

A 606, 384

Burns Company has purchased land that will serve as a temporary repository for nuclear waste. The site
will function for 30 years, at which time Burns will be required to completely decontaminate the land.
The purchase price for the land is 500,000. Burn knows that the land will have to be decontaminated but
isnt sure which of several possible approaches will be sufficient to reach the level of decontamination
necessary by law. The costs of each approach, and the estimated probability that the approach will be
the one used, follow:

Approach 1- 10% probability of total decontamination cost of 5,000 at the end of 30 years.

Approach 2- 20% probability of total decontamination cost of 100,000 at the end of 30 years.

Approach 3- 70% probability of total decontamination cost of 1,500,000 at the end of 30 years.

Assuming that the appropriate interest rate is 8% the cost of the nuclear waste repository site is

A. 606, 384 C. 659,500

B. 156, 072 D. 500,000

A 3,600,000

Botolan Company quaries limestone, crushes it and sells it to be used in road building. Botolan paid
20,000,000 for a certain quarry on January 1, 2015. The property can be sold for 4,000,000 after
production ceases. The original total estimated reserves totaled 5,000,000 tons. Botolan quarried
500,000 tons in 2015 and 1,500,000 tons in 2016. An engineering study performed in 2016 indicated
that as of December 31,2016 4,500,000 tons were available. Botolan Company should record 2016
depletion at

A. 3,600,000 C. 4,800,000
B. 6,000,000 D. 4,500,000

A 4,060,000

Masinloc Company purchased a tract of resource land in 2015 for 39,600,000. The content of the tract
was estimated at 1,200,000 units. When the resource has been exhausted, it is estimated that the land
will be worth 1,200,000. Fixed installations were set up at a cost 9,600,000. Mining equipment was
purchased on January 2, 2016 for 12,400,000. The life of the fixed installations is 8 years and the
equipment, 4 years. In 2016, 120,000 units have been extracted. This was one half of the annual
extraction which can be expected following the first year of operations

Masinloc Company should record total depreciation for 2016 at

A. 4,060,000 C. 2,200,000

B. 3,100,000 D. 960,000

C 3,600,000

Leyte Company constructed a building costing 15,000,000 on a mine property. The building has an
estimated life of 6 years with no salvage value. After all the resources is removed expectedly over 5
years, the building will be of no use. The recoverable output from the mine is 1,000,000 tons. During the
first year, Leyte produced 200,000 tons but there was shut down and no output in the second year. In
the third year, Leyte resumed operations and produced 300,000 tons. Leyte Company should record
depletion of the building in the third year at

A. 3,000,000 C. 3,600,000

B. 2,500,000 D. 4,500,000

B. 14,000,000

ABC Company provides the following balances at the end of 2016:

Wasting assets, at cost 80,000,000

Accumulated depletion 20,000,000

Retained Earnings 10,000,000

Capital liquidated 15,000,000

Depletion based on 100,000 units

extracted at P50 per unit 5,000,000

Inventory of resource deposit

Compute for the maximum amount of dividend that ABC can declare on December 31, 2016

A. 20,000,000 C. 15,000,000

B. 14,000,000 D. 13,000,000

B 208,000

During 2016, Bolton Corporation acquired a mineral mine for 1,500,000 of which 200,000 was ascribed
to land value after the mineral has been removed. Geological surveys have indicated that 10 million
units of the mineral could be extracted. During 2016, 2,000,000 units were extracted and 1,600,000
units were sold. What is the amount of depletion expensed for 2016?

A. 300,000 C. 240,000

B. 208,000 D. 260,000

B 210,000

On July 1, 2016, Iba Mining Company, a calendar year corporation, purchased the rights to a copper
mine. Of the total purchase price, 2,800,000 was appropriately allocable to copper. Estimated reserves
were 800,000 tons of copper. Iba expects to extract and sell 10,000 tons of copper per month.
Production began immediately. The selling price is 2,500 per ton. If sales and production conform to
expectations, what is Iba's depletion expense on this mine for financial accounting purposes for the
calendar year 2016?

A. 35,000 C. 410,000

B. 210,000 D. 0

C 90,000

An oil company using the successful-efforts method drilled two wells. The first, a dry hole, cost 50,000.
The second cost of 100,000 and had estimated recoverable reserves of 25,000 barrels, of which 10,000
were sold this year. What will be the total expense for the year related to the exploration and
production from these two wells?

A. 40,000 C. 90,000

B. 60,000 D. 150,000

D All of the above

The IASB's objectives for IFRS6 which is a phase of its extractive activities project include
A. To make limited improvements to accounting practices for exploration and evaluation expeditures,
without requiring major changes that might be reversed when the IASB undertakes a comprehensive
review of accounting practices used by entities engaged in the exploration for and evaluation of mineral
resources.

B. To specify the circumstances in which entities that recognize exploration and evaluation assets should
test such assets for impairment in accordance with PAS 36 Impairment of Assets.

C. To require entities engaged in the exploration for and evaluation assets, the level at which such assets
are assessed for impairment and any impairment losses recognizeed.

D. All of the above

D There are Inappropriate views on how exploration and evaluation expenditures should be accounted
for in accordance with IFRSs.

Which of the following is not a reason for the IASB's decision to develop IFRS on exploration for and
evaluation of mineral resources?

A. Lack of specific IFRS that specifically addresses the accounting for those activities

B. Accounting practices for exploration and evaluation assets under requirements of other standard-
setting bodies are diverse and often differ from practices in other sectors for expenditures that may be
considered analogous

C. Exploration and evaluation expenditures are significant to entities engaged in extractive activities

D. There are Inappropriate views on how exploration and evaluation expenditures should be accounted
for in accordance with IFRSs.

When developing its accounting policies, PFRS 6 exempts an entity recognizing explorations and
evaluation assets from applying which paragraphs of PAS 8 Accounting Policies, Changes in Accounting
Estimates and Errors?

I. Paragraph 10

II. Paragraph 11

III. Paragraph 12

A. I, II, and III

B. I only

C.II only
D. II and III only

D Whether the accounting policy results in information that is relevant and reliable.

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 Framework

C. Recent pronouncements of standard-setting bodies, accounting literature and accepted industry

D. Whether the accounting policy results in information that is relevant and reliable.

D Neither a nor b

PFRS6 Exploration for and evaluation of mineral resources applies to expenditures incurred

A. Before the exploration for and evaluation of mineral resources, such as expenditures incurred before
the entity has obtained the legal rights to explore a specific area.

B. After the technical feasibility and commercial viability of extracting a mineral resource are
demonstrable

C. Both a and b

D. Neither a nor b

D Neither a nor b

PFRS6 Exploration for and evaluation of mineral resources applies to expenditures incurred in

A. The extraction and processing of mineral resources for transport to market.

B. The commercial review of possible areas for mineral extraction before bidding for the legal rights to
explore a specific area.

C. Both a and b

D. Neither a nor b

D Preparing a mineral resources for extraction

The following are examples of expenditures that might be included in the initial measurement of
exploration and evaluation assets except
A. Acquisition rights to explore

B. Topographical, Geological, Geochemical and geophysical studies

C. Exploratory drilling

D. Preparing a mineral resources for extraction

A Evaluating the technical feasibility and commercial viability of extracting a mineral resources.

Which of the following expenditures might be included in the initial measurement of exploration and
evaluation assets?

A. Evaluating the technical feasibility and commercial viability of extracting a mineral resources.

B. Development of mineral resources

C. Extraction of mineral resources.

D. Removal and restoration that are incurred during a particular period as a consequence of having
undertaken the exploration for and evaluation of mineral resources.

C Either the cost model or the revaluation model

Which measurement model applies to exploration and evaluation assets subsequent to initial
recognition?

A. The cost model

B. The revaluation model

C. Either the cost model or the revaluation model

D. The recoverable amount model

C Yes, but only if the change makes the financial statements more relevant to those needs.

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 those needs.
D. No, entities would be permitted to a change accounting policy only on adoption of a new of revised
Standard that replaces the existing requirement in PFRS6.

D Identifying an asset that may be impaired

PFRS 6 differs from PAS 36 in relation to

A. Performance of impairment test.

B. Recognition of impairment loss as an expense.

C. Required disclosures when an asset is impaired

D. Identifying an asset that may be impaired

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.

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

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.

D An entity shall treat exploration and evaluation assets as an addition to property, plant and equipment
or intangible assets

Which statement is incorrect regarding disclosure of information regarding exploration and evaluation
of mineral resources?

A. An entity shall disclose information that identifies and explains the amount recognized in its financial
statements arising from the exploration for and evaluation of mineral resources.

B. An entity shall make the disclosures required by PAS 16 for tangible exploration and evaluation assets

C. An entity shall make the disclosures required by PAS 38 for intangible exploration and evaluation
assets

D. An entity shall treat exploration and evaluation assets as an addition to property, plant and
equipment or intangible assets
D Information about commercial reserve qualities

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

A. Accounting policies for exploration and accounting expenditures, including the recognition of
exploration for and evaluation assets

B. The amounts of assets, liabilities, income and expense, and operating and investing cash flows arising
from the exploration for and evaluation of mineral resources.

C. Information that identifies and explains the amount recognized in the financial statements arising
from the exploration for and evaluation of mineral resources

D. Information about commercial reserve qualities

D Stripping costs in production phase of surface mine.

IFRIC 20 dealt with

A. Exploration for and evaluation of mineral resources

B. Development of natural resources

C. Changes to existing restorations, decommisioning and similar liabilities

D. Stripping costs in production phase of surface mine.

C Removal of mine waste materials to gain access to mineral ore deposits.

In accordance with IFRIC 20, "stripping" means

A. 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.

B. Determination of the technical feasibility and commercial viability of extracting the mineral resource

C. Removal of mine waste materials to gain access to mineral ore deposits.

D. Extraction of mineral ore deposits.

D All of the above

An entity shall recognize a stripping activity asset if and only if:

A. It is probable that the future economic benefit associated with the stripping activity will flow to the
entity

B. The entity can identify the component of the ore body for which access has been improved.
C. The costs relating to the stripping activity associated with that component can be measured reliably

D. All of the above

B 130 Million

The Macau Company is involved in the exploration for mineral resources. Its policy is to recognize
exploration assets and measure them initially at cost.

At the end of 2016 the following amounts were extracted from Macau's financial statements:

Trenching and sampling expenditure 100M

Drilling rigs used for exploration,

carrying amount 200M

Drilling rigs used for exploration

depreciation expense 30M

In accordance with PFRS6 Exploration for and evaluation of mineral resources, at what amount should
intangible exploration assets be initially recognized at in the financial statements in Macau?

A. 100 Million C. 300 Million

B. 130 Million D. Nil

D Units of production method

The most common method of recording depletion for accounting purposes is the

A. Percentage depletion method

B. Diminishing charge method

C. Straight line method

D. Units of production method

D Is usually part of cost of goods sold.

Depletion expense

A. Includes tangible equipment costs in the depletion base.

B. Excludes intangible development costs from depletion base

C. Excludes restoration costs from the depletion base.

C 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.

PFRS 6 defines Exploration for mineral resources as

A. The original and planned investigation undertaken with the prospect of gaining new scientific or
technical knowledge and understanding.

B. The application of research findings or other knowledge to a plan or design for the production of new
or substantially improved materials, devices, products, processes, systems or services before the start of
commercial production or use.

C. 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.

D. The determination of the technical feasibility and commercial viability or extracting the mineral
resources.

Activities related to exploration for and evaluation of mineral resources include

I. Acquisition of rights to explore

II. Topographical, geological and geophysical studies

III. Exploratory drilling

IV. Trenching

V. Sampling

VI. Evaluating the technical feasibility and commercial viabilility of extracting a mineral resource

A. I, II, III, IV, V, and VI

B. I, II, III, IV, and V only

C. I, II, IV, and VI only

D. I, IV, and VI only

C YES, but only to the extent required by the entity's accounting policy for recognizing exploration and
evaluation assets.

Does PFRS 6 require an entity to recognize exploration and evaluation expenditures as assets?
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 expenditures is always expensed in profit or loss as incurred.

B The technical feasibility and commercial viability of extracting a mineral resource are demonstable

An exploration and evaluation asset shall no longer be classified as such when

A. The technical feasibility and commercial viability of extracting a mineral resource are not clear.

B. The technical feasibility and commercial viability of extracting a mineral resource are demonstable

C. The exploration and evaluation asset are impaired

D. The exploration and evaluation asset are revalued

D Using a tangible asset to develop an intangible asset changes a tangible asset into an intangible asset.

Which statement is incorrect regarding presentation of exploration and evaluation assets?

A. An entity shall classify exploration and evaluation assets as tangible or intangible according to the
nature of the assets acquired and apply the classification consistently.

B. Some exploration and evaluation assets are treated as intangible (eg drilling rights), whereas others
are tangible (eg vehicles and drilling rigs).

C. To the extent that a tangible asset is consumed in developing an intangible asset, the amount
reflecting that consumption is part of the cost of the intangible asset.

D. Using a tangible asset to develop an intangible asset changes a tangible asset into an intangible asset.

A 200 Million

The Zamboni Company is involved in the exploration of mineral resources. Its policy is to recognize
exploration assets and measure them initially at cost

During 2016, Zamboni incures the following expenditure:

Exploratory drifting for minerals

on site and related activities 200Million

Roads and infrastructure to access

Expenditures relating to the subsequent

development of the resources 340Million

In accordance with PFRS6 Exploration for Evaluation of mineral resources, at what amount should
exploration assets be initially recognized in the financial statements of Zamboni?

A. 200 Million C. 550 Million

B. 540 Million D. 890 Million

D units-of-production method

The most common method of recording depletion for accounting purposes is the

A. percentage depletion method.

B. decreasing charge method.

C. straight-line method.

D. units-of-production method.

B 14 Million

During 2016, Sitar Oil Corporation incurred 4,000,000 in exploration costs for each of 15 oil wells drilled
in 2016. Of the 15 wells drilled, 10 were dry holes. Sitar uses the successful efforts method of
accounting. Assuming that Sitar depletes 30% of the oil discovered in 2016, what amount of these
exploration costs would remain in its December 31, 2016 statement of financial position?

A. 6 Million C. 20 Million

B. 14 Million D. 42 Million

B 144,000

In January 2016, Rangoon Mine Co. purchased a mineral mine for $2,640,000 with removable ore
estimated at 1,200,000 tons. After it has extracted all the ore, Rangoon Mine will be required by law to
restore the land to its original condition at an estimated cost of 220,000. The present value of the
estimated restoration costs is 180,000. Rangoon Mine believes it will be able to sell the property
afterwards for $300,000. During 2016, Rangoon Mine incurred $360,000 of development costs
preparing the mine for production and removed and sold 60,000 tons of ore.

In its 2016 statement of comprehensive income, what amount should Rangoon Mine report as
depletion?
A. 135, 000 C. 150,000

B. 144,000 D. 159,000

D The stripping activity asset shall be accounted for as a separate asset

Which is incorrect regarding recognition of production stripping costs as an asset in accordance with
IFRIC 20?

A. To the extent that the benefit from the stripping activity is realized in the form of inventory produced,
the entity shall account for the costs of that stripping activity in accordance with the principles of PAS 2
Inventories.

B.To the extent the benefit is improved access to ore, the entity shall recognize these costs as a non-
current asset, if the criteria are met.

C. IFRIC 20 refers to the non-current asset as the 'stripping activity asset'

D. The stripping activity asset shall be accounted for as a separate asset

B 12,040,000

In 2014, Lepanto Mining Company purchased property with natural resources for P28,000,000. The
property had a residual value of P5,000,000. However, the company is required to restore the property
to its original condition for P2,000,000.

In 2014, Lepanto spent P1,000,000 in development costs and P3,000,000 in buildings on the property.
Lepanto does not anticipate that the buildings will have utility after the natural resources are removed.
In 2015, an amount of P1,000,000 was spent for additional development on the mine. The tonage mined
and estimated remaining tons for years 2014 to 2016 are as follows:

Tons extracted Tons remaining

2010 0 10,000,000

2011 3,000,000 7,000,000

2012 3,500,000 2,000,000

The company should recognize depletion for 2012 at:

A. 10,150,000 C. 14,245,000

B. 12,040,000 D. 9,450,000

D Both depreciation and depletion are based on time.

Which of following is not a similarity in the accounting treatment for depreciation and cost depletion?
A. The estimated life is based on economic or productive life.

B. Assets subject to either are reported in the same classification on the statement of financial position.
C. The rates may be changed upon revision of the estimated productive life used in the original rate
computations.

D. Both depreciation and depletion are based on time.

D Do not expect to purchase additional property after depleting existing property

Dividends representing a return of capital to shareholders are not uncommon among companies which

A. use accelerated depreciation methods.

B. use straight-line depreciation methods.

C. recognize both functional and physical factors in depreciation.

D. Do not expect to purchase additional property after depleting existing property

C 676,500

Yakal Exploration Co. purchased in 2014 a property that contained mineral deposit for P4,500,000.
Estimated recovery was 1,000,000 metric tons of deposits. Development costs P150,000 were also
incurred in the same year. The mining property was expected to be worth P600,000 after the mineral
deposits had all be removed. During 2015, the company extracted and sold 100,000 metric tons of
minerals. Further development costs of P75,000 were incurred in 2016, and the estimate of total
recoverable deposits (including the amount extracted in 2015) was revised up to 925,000 metric tons.
During 2016, the company recovered 150,000 metric tons.

The depletion for the year 2016 is

A. 603,658 C. 676,500

B. 618,750 D. 750,000

A 1,800,000

On July 1, 2016 Cabangan Company purchased rights to a mine. The total purchase price was
P50,000,000 of which P5,000,000 was allocated to the land. Estimated reserves were 6,000,000.
Cabangan expects to exract and sell 100,000 tons per month. Cabangan Company purchased new
equipment on July 1, 2016 for P21,000,000 with estimated life of 8 years. However, after all the
resource is removed, the equipment will be of no used and will be sold for P3,000,000. What is the
depreciateion of the equipment for 2016?
A. 1,800,000 C. 2,100,000

B. 1,125,000 D. 3,600,000