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    Depletion of Universal Company

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    Jerbert Jesalva
    Universal Company paid $10.8 million for an ore property containing 2 million tons of ore. $900,000 was estimated to restore the land and it will be worth $1.3 million after restoration. $8 million was spent on mine improvements. In 2021, 600,000 tons were mined and depletion of $3.12 million and depreciation of $2.4 million were recorded. In 2022, additional improvements of $1.54 million were made and 400,000 tons were mined, with depletion of $1.28 million and depreciation of $1.256 million recorded.

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    Depletion of Universal Company

    Uploaded by

    Jerbert Jesalva
    190 views2 pages
    Universal Company paid $10.8 million for an ore property containing 2 million tons of ore. $900,000 was estimated to restore the land and it will be worth $1.3 million after restoration. $8 million was spent on mine improvements. In 2021, 600,000 tons were mined and depletion of $3.12 million and depreciation of $2.4 million were recorded. In 2022, additional improvements of $1.54 million were made and 400,000 tons were mined, with depletion of $1.28 million and depreciation of $1.256 million recorded.

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    Depletion of universal company

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    Universal Company paid $10.8 million for an ore property containing 2 million tons of ore. $900,000 was estimated to restore the land and it will be worth $1.3 million after restoration. $8 million was spent on mine improvements. In 2021, 600,000 tons were mined and depletion of $3.12 million and depreciation of $2.4 million were recorded. In 2022, additional improvements of $1.54 million were made and 400,000 tons were mined, with depletion of $1.28 million and depreciation of $1.256 million recorded.

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    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    190 views2 pages

    Depletion of Universal Company

    Uploaded by

    Jerbert Jesalva
    Universal Company paid $10.8 million for an ore property containing 2 million tons of ore. $900,000 was estimated to restore the land and it will be worth $1.3 million after restoration. $8 million was spent on mine improvements. In 2021, 600,000 tons were mined and depletion of $3.12 million and depreciation of $2.4 million were recorded. In 2022, additional improvements of $1.54 million were made and 400,000 tons were mined, with depletion of $1.28 million and depreciation of $1.256 million recorded.

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    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    of 2

    On January 1, 2020 Universal Company paid P10,800,000 for property containing natural resource of

    2,000,000 tons of ore.

    The estimated discounted amount of restoring the land after the resource is exhausted is P900,000 and
    the land will have a value of P1,300,000 after it is restored for suitable use.

    Tunnels, bunk houses and other fixed installations are constructed in the amount of P8,000,000. Such
    expenditures are to be charged to mine improvements. (use output method for depreciation)

    Operations began on January 1, 2021 and resources removed totalled 600,000 tons. During 2022, a
    discovery was made indicating that available resources after 2022 will total 1,875,000 tons.

    At the beginning of 2022, additional bunk houses were constructed in the amount of P1,540,000. In
    2022, only 400,000 tons were mined because of a strike.

    Required:

    Prepare journal entries for 2020, 2021 and 2022. (use the table below and add additional cells, if
    necessary)

    Date Dr Cr
    2020 Ore Property ₱10,800,000
    Cash ₱10,800,000
    Amount paid for the property acquired
    Ore Property 900,000
    Restoration cost 900,000
    Estimated restoration cost of the land
    Mine improvements 8,000,000
    Cash 8,000,000
    To record the expenditures incurred for tunnels, bunk
    houses, and other fixed installations.
    2021 Depletion (600,000 × 5.2) 3,120,000
    Accumulated depletion 3,120,000
    To record the annual depletion
    Depletion Base:
    Cost of the property ₱10,800,000
    Restoration Cost 900,000

    Less: Residual Value (1,300,000)


    Depletion Base ₱10,400,000

    Depletion rate : ₱10,400,000 ÷ 2,000,000 tons =


    5.2/ton

    Depreciation Expense (600,000 × 4) 2,400,000


    Accumulated Depreciation 2,400,000
    To record the depreciation expense of the resources
    removed as of Jan. 1,2021
    2022 Depletion (400,000 × 3.2) 1,280,000
    Accumulated Depletion 1,280,000
    To record the annual depletion

    Depletion Base ₱10,400,000


    Less: Depletion as of 2021 3,120,000
    Balance Remaining ₱ 7,280,000

    Ore mined in 2022 ₱ 400,000


    Available resources after 2022 1, 875,000
    Total estimated product
    in Jan. 2022 ₱ 2,275,000

    New Depletion rate: ₱7,280,000 ÷ 2,275,000 = 3.2/ton

    Mine improvements 1,540,000


    Cash 1,540,000
    To record the amount paid for additional bunk houses
    contsructed
    Depreciation Expense (400,000 × 3.14) 1,256,000
    Accumulated depreciation 1,256000
    To record the depreciation expense of the resources
    removed as of 2022
    Cost ₱9,540,000
    Less: Accum. Depreciation 2,400,000
    Carrying amount ₱7,140,000
    Cost of construction as of:
    2021 ₱8,000,000
    2022 1,540,000
    Total Cost ₱9,540,000
    New depletable rate: 7,140,000 ÷ 2,275,000 =
    3.14/ton

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