34

DEPLETION

Problem 34-1 (IFRS)

Harriet Company is involved in the exploration for mineral rights. The accounting policy is to recognize
exploration assets and measure them initially at cost. During the current year, Harriet Company
incurred the following expenditures:

Exploratory drilling for minerals on site and related activities 2,000,000

Roads and infrastructure to access exploration site 3,500,000
Expenditures relating to the subsequent development of the resources 3,400,000

At what amount should exploration assets be initially recognized in the financial statements?

a. 2,000,000
b. 5,400,000
c. 5,500,000
d. 8,900,000

Solution 34-1 Answer A

Exploration assets are expenditures incurred by an entity after the entity has obtained legal rights for
the exploration and evaluation of mineral resources but before the technical feasibility and commercial
viability of extracting mineral resources.

Only the exploratory drilling should be recognized as an exploration asset. Under PFRS 6, paragraph 9,
exploratory drilling is an example of expenditure that can be related to the finding of specific mineral
resources.

Roads and infrastructure should not be recognized as exploration asset but as development cost.

PFRS 6, paragraph 10, provides that development expenditures should not be recognized as exploration
assets.
Problem 34-2 (IFRS)

Samantha Company is involved in the exploration for mineral resources. The accounting policy is to
recognize exploration assets and measure them initially at cost. At the end of the current year, the
following amounts were extracted from the financial statements:

Trenching and sampling expenditure 1,000,000

Drilling rigs used for exploration, carrying amount 2,000,000
Drilling rigs used for exploration, depreciation expense 300,000

What amount of intangible exploration assets should be recognized in the financial statements?

a. 1,000,000
b. 1,300,000
c. 3,000,000
d. 0

Solution 34-2 Answer B

Trenching and sampling expenditure 1,000,000

Depreciation of drilling rigs used for exploration 300,000
Total intangible exploration assets 1,300,000

Exploration asset is either classified as tangible asset or intangible asset. Under PFRS 6, paragraph 9,
trenching asset and sampling expenditure is an example of intangible exploration asset. The
depreciation of the drilling rigs used for exploration should also be part of intangible exploration assets.

However, PFRS 6, paragraph 16, provides that the carrying amount of the drilling rigs is classified as
tangible exploration asset.

Problem 34-3 (AICPA adapted)

At the beginning of the current year, Vorst Company purchased a mineral mine for P26,400,000 with
removable ore estimated at 1,200,000 tons. After it has extracted all the ore, Vorst will be required by
law to restore the land to its original condition at a discounted amount of P 1,800,000. Vorst believes it
will be able to sell the property afterwards for P3,000,000.

During the current year, Vorst incurred P 3,600,000 of development cost preparing the mine for
production, removed 80,000 tons of ore and sold 60,000 tons.
What amount of depletion should be recorded for all the current year?

a. 1,920,000
b. 1,440,000
c. 2,120,000
d. 1,590,000

Solution 34-3 Answer A

Acquisition cost 26,400,000

Development cost 3,600,000
Estimated restoration cost 1,800,000
Total cost 31,800,000
Residual value (3,000,000)
Depletable value 28,800,000
Rate per unit (28,800,000 / 1,200,000) 24

Depletion for the current year (80,000 x 24) 1,920,000

Depletion included in cost of goods sold (60,000 x 24) 1,440,000

Problem 34-4 (IAA)

Diva Company acquired a tract of land containing an extractable natural resource. Diva is required by
the purchase contact to restore the land to a condition suitable for recreational use after extraction of
the natural resource. Geological survey estimated that the recoverable reserves will be 200,000 tons
and that the land will have a value of P 1,000,000 after restoration. Relevant cost information is as
follows:

Land purchase cost 8,000,000

Estimated restoration cost at present value 500,000
Cost of development and geological survey 1,500,000

What is the depletion rate per ton?

a. 40
b. 35
c. 45
d. 50
Solution 34-4 Answer C

Purchase cost 8,000,000

Restoration cost 500,000
Cost of development 1,500,000

Total cost 10,000,000

Residual value (1,000,000)

Depletable amount 9,000,000

Depletion rate (9,000,000 / 200,000) 45

Problem 34-5 (AICPA adapted)

In January 2010, Huff Mining Company purchased a mineral mine for P 36,000,000 with removable ore
estimated by geological survey at 2,160,000 tons. The property has an estimated value of P 3,600,000
after the ore has been extracted. Huff incurred P 10,800,000 of development cost preparing the
property for the extraction of ore. During 2010, 270,000 tons were removed and 240,000 tons were
sold.

For the year ended December 31, 2010, what amount of depletion should be included in cost of goods
sold?

a. 3,600,000
b. 4,050,000
c. 4,800,000
d. 5,400,000

Solution 34-5 Answer C

Purchase price 36,000,000

Development cost 10,800,000

Total cost of ore property 46,800,000

Residual value (3,600,000)

Depletable amount 43,200,000

Rate per ton (43,200,000 / 2,160,000) 20

Depletion for 2010 (270,000 x 20) 5,400,000

Depletion in cost of goods sold (240,000 x 20) 4,800,000

Problem 34-6 (IAA)

June Company acquired property at the beginning of the current year which is believed to include
valuable mineral deposit. The cost of the property was P 9,000,000. Geological estimates indicate that
approximately 1,000,000 tons of mineral may be economically extracted. It is further estimated that the
property can be sold for P 2,500,000 to be used for commercial development following mineral
extraction. June Company is legally required to restore the land to a condition appropriate for resale at
a discounted amount of P 800,000. After initial acquisition, the following costs were incurred:

Exploration cost 3,500,000

Development cost related to drilling and development of wells 3,200,000
Development cost related to production equipment 4,600,000

The entity extracted 50,000 tons of the mineral in the current year.

What amount should be recorded as depletion for the current year?

a. 825,000
b. 930,000
c. 700,000
d. 785,000

Solution 34-6 Answer C

Acquisition cost 9,000,000

Exploration cost 3,500,000
Development cost related to drilling and development of wells 3,200,000
Estimated restoration cost 800,000

Total 16,500,000
Residual value (2,500,000)

Depletable amount 14,000,000

Rate per unit (14,000,000 / 1,000,000) 14

Depletion for the current year (50,000 x 14) 700,000

The development cost related to production equipment is not part of the cost of the mineral property
because it is subject to depreciation.
Problem 34-7 (AICPA Adapted)

Farr Company quarries limestone, crushes it and sells it to be used in road building. Farr paid P
10,000,000 for a certain quarry. The property can be sold for P 3,000,000 after production ceases.

Estimated total reserves 10,000,000

Tons quarried through December 31, 2009 4,000,000
Tons quarried in 2010 1,500,000

An engineering study performed in 2010 indicated that as of January 1, 2010, 7,500,000 tons of
limestone was available.

What is the depletion for 2010?

a. 1,050,000
b. 2,800,000
c. 1,200,000
d. 840,000

Solution 34-7 Answer D

Acquisition cost 10,000,000

Residual value (3,000,000)

Depletable amount 7,000,000

Accumulated depletion – December 31, 2009
(7,000,000 / 10,000,000 = .70 x 4,000,000) (2,800,000)

Remaining depletable amount – December 31, 2009 4,200,000

New depletion rate (4,200,000 / 7,500,000) .56

Depletion for 2010 (1,500,000 x .56) 840,000

Problem 34-8 (IAA)

Seacrest Company started business at the beginning of the current year. During the year, the entity had
oil and gas exploration costs of P 5,000,000. Of these costs, P 1,000,000 was associated with successful
wells and P 4,000,000 with so called dry holes. All of the costs were incurred during the year. The entity
uses the successful effort method.
What is the oil and gas exploration expense to be reported for the year?

a. 5,000,000
b. 4,000,000
c. 1,000,000
d. 0

Solution 34-8 Answer B

Under the “successful effort” method, only the exploration costs associated with successful wells are
capitalized. The exploration costs associated with “dry holes” or unsuccessful wells are expensed
immediately.

Under the “full cost” method, all exploration costs whether associated with successful wells or dry holes
are capitalized.

Problem 34-9 (IAA)

Delaware Company is an oil and gas exploration entity. During the current year, Delaware engaged in
five different exploration projects. The costs associated with these projects are as follows:

Project 1 3,250,000
Project 2 1,780,000
Project 3 4,230,000
Project 4 2,400,000
Project 5 960,000

Only Projects 2 and 5 were successful. As of the end of the current year, production had not yet started
at either of these two sites.

If the entity follows the successful effort method, how much should be recognized as exploration
expense in the current year?

a. 12,620,000
b. 9,880,000
c. 2,740,000
d. 0

Solution 34-9 Answer B

The exploration costs associated with the unsuccessful projects shall be recognized as expense in the
current year. Projects 1, 3 and 4 were unsuccessful.
Problem 34-10 (IAA)

In 2009, Newton Company paid P 1,000,000 to purchase land containing total estimated 160,000 tons of
extractable mineral deposits. The estimated value of the property after the mineral has been removed
is P 200,000. Extraction activities began in 2010, and by the end of the year, 20,000 tons had been
recovered and sold. In 2011, geological studies indicated that the total amount of mineral deposits had
been underestimated by 25,000 tons. During 2011, 30,000 tons were extracted and 28,000 tons were
sold.

What is the depletion rate per ton in 2011?

a. 4.24
b. 4.32
c. 4.85
d. 5.19

Solution 34-10 Answer A

Cost 1,000,000
Residual value (200,000)

Depletable amount 800,000

Depletion in 2010
(800,000 / 160,000 = 5 x 20,000) (100,000)

Remaining depletable amount – January 1, 2011 700,000

Original estimate 160,000

Extracted in 2010 (20,000)

Remaining estimate 140,000

Underestimate 25,000

Adjusted estimate – January 1, 2011 165,000

Depletion rate in 2011 (700,000 / 165,000) 4.24

Problem 34-11 (IAA)

Josephine Company acquired a tract of land containing an extractable natural resource. Josephine 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 will be
2,500,000 tons and that the extraction will be completed in five years. Relevant cost information
follows:
Land 9,000,000
Exploration and development cost 1,000,000
Expected cash flow for restoration cost 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

Solution 34-11 Answer B

Land cost 9,000,000

Exploration and development cost 1,000,000
Present value of expected restoration cost (1,500,000 x .62) 930,000

Depletable amount 10,930,000

Depletion rate per ton (10,930,000 / 2, 500,000) 4.37

Since the entity is required by contract to restore the land to a condition suitable for recreational use,
the estimated restoration cost shall be capitalized. If an appropriate rate is available, the amount
should be discounted.

Problem 34-12 (AICPA Adapted)

On July 1, 2010, Lam Company, a calendar year corporation, purchased the rights to a mine. The total
purchase price was P 13,200,000, of which P 400,000 was allocated to the land. Estimated reserves
were 1,600,000 tons. Lam expects to extract and sell 25,000 tons per month. Lam purchased new
equipment on July 1, 2010. The equipment cost P 6,600,000 and had useful life of 8 years. However,
after all the resource is removed, the equipment will be of no use and will be sold for P 200,000.

1. What amount should be recorded as depletion for 2010?

a. 1,200,000
b. 2,400,000
c. 1,237,500
d. 2,475,000
 2. What amount should be recorded as depreciation of the mining equipment for 2010?

a. 400,000
b. 800,000
c. 600,000
d. 300,000

Solution 34-12

Question 1 Answer A

Purchase price 13,200,000

Residual value ( 400,000)

Depletable amount 12,800,000

Production from July 1 to December 31, 2010 (25,000 x 6) 150,000

Depletion rate (12,800,000 / 1, 600,000) 8

Depletion for 2010 1,200,000

Question 2 Answer C

Production from July 1 to December 31, 2010 150,000 tons

Annual production (25,000 x 12) 300,000 tons
Estimated life of mine (1,600,000 / 300,000) 5 1/3 years

Since the life of the mine is shorter than the life of the equipment, the output method is used in
computing depreciation. The straight line is used if the life of the equipment is shorter.

However, if the mining equipment is movable and can be used in future extractive project, the
equipment is depreciated over its useful life using the straight line method.

Equipment 6,600,000
Residual value (200,000)

Depreciable amount 6,400,000

Rate per unit (6,400,000 / 1,600,000) 4

Depreciation for 2010 (150,000 x 4) 600,000

Problem 34-13 (PHILCPA Adapted)

Toledo Mining Company constructed a building costing P 2,800,000 on the mine property. The
estimated residual value will not benefit the entity and will be ignored for purposes of computing
depreciation. The building has an estimated life of 10 years. The total estimated recoverable output
from the mine is 500,000 tons. The entity’s production of the first four years of operation was:

First year 100,000 tons

Second year 100,000 tons
Third year shut down, no output
Fourth year 100,000 tons

What is the depreciation for the fourth year?

a. 490,000
b. 560,000
c. 210,000
d. 336,000

Solution 34-13 Answer A

Depreciation for first year

(2,800,000 / 500,000 = 5.60 x 100,000) 560,000

Cost 2,800,000
Accumulated depreciation for 2 years (560,000 x 2) 1,120,000

Carrying amount – beginning of third year 1,680,000

Depreciation for third year (1,680,000 / 8 years) 210,000

In the year of shutdown, the straight line method is used, based on the remaining life of the asset.

Cost 2,800,000
Accumulated depreciation for 3 years(1,120,000 + 210,000) 1,330,000

Carrying amount – beginning of fourth year 1,470,000

Divide by remaining output (500,000 – 200,000) 300,000

New rate per ton 4.90

Depreciation for fourth year (100,000 x 4.90) 490,000

Problem 34-14 (IAA)

In 2007, Sunflower Company acquired silver mine in Eastern Mindanao. Because the mine is located
deep in the Mindanao frontier, Sunflower was able to acquire the mine for the low price of P 50,000. In
2008, Sunflower constructed a road to the silver mine costing P 5,000,000. Improvements and other
development costs made in 2008 cost P 750,000. Because of the improvements to the mine and to the
surrounding land, it is estimated that the mine can be sold for P 600,000 when mining activities are
complete.

During 2009, five buildings were constructed near the mine site to house the mine workers and their
families. The total cost of the five building was P 2,000,000. Estimated residual value is P 200,000.
Geologists estimated that 4,000,000 tons of silver ore could be removed from the mine for refining.
During 2010, the first year of operations, only 500,000 tons of silver ore were removed from the mine.

However, in 2011, workers mined 1,000,000 tons of silver. During that 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 P 1,300,000 were made to the mine early in 2011 to facilitate the removal of the
additional silver. Early in 2011, an additional building was constructed at a cost of P 375,000 to house
the additional workers needed to excavate the added silver. This building is not expected to have any
residual value.

a. What is the depletion for 2011?

a. 1,300,000
b. 1,525,000
c. 900,000
d. 700,000

b. What is the depreciation of the building for 2011?

a. 300,000
b. 450,000
c. 500,000
d. 290,000
Solution 34-14

Question 1 Answer C

Purchase price 50,000

Road construction 5,000,000
Improvements and other development costs 750,000

Total cost 5,800,000

Residual value (600,000)

Depletable amount 5,200,000

Depletion rate per unit (5,200,000 / 4,000,000) 1.30

Depletion for 2010 (500,000 x 1.30) 650,000

Depletable amount 5,200,000

Depletion in 2010 (650,000)

Remaining depletable amount 4,550,000

Development costs in 2011 1,300,000

Total depletable amount – January 1, 2011 5,850,000

Original estimate 4,000,000

Additional estimate 3,000,000

Total estimate 7,000,000

Extracted in 2010 (500,000)

Remaining estimate – January 1, 2011 6,500,000

New depletion rate per unit (5,850,000 / 6,500,000) .90

Depletion for 2011 (1,000,000 x .90) 900,000

Question 2 Answer A

Cost of buildings 2,000,000

Residual value (200,000)

Depreciable amount 1,800,000

Depreciation rate per unit (1,800,000 / 4,000,000) .45

Depreciation for 2010 (500,000 x .45) 225,000

In the absence of any statement to the contrary, the output method is used in computing depreciation
of mining equipment.
Depreciable amount 1,800,000
Depreciation for 2010 (225,000)

Remaining depreciable amount 1,575,000

Additional building in 2011 375,000

Total depreciable amount – January 1, 2011 1,950,000

New depreciation rate per unit (1,950,000 / 6,500,000) .30

Depreciation for 2011 (1,000,000 x .30) 300,000

Problem 34-15 (IAA)

Reliable Company purchased a tract of resource land in 2009 for P 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 P 1,200,000. Fixed installations were set up at a cost of P 9,600,000. Mining equipment
was purchased on January 1, 2010 for P 12,400,000. The life of the fixed installations is 8 years and the
equipment, 4 years.

In 2010, 120,000 units have been extracted. This was one half of the annual extraction which can be
expected following the first year of operations.

1. What amount should be recorded as depletion for 2010?

a. 3,840,000
b. 3,960,000
c. 4,800,000
d. 4,920,000

2. What amount should be recorded as total depreciation for 2010?

a. 4,060,000
b. 3,100,000
c. 2,200,000
d. 960,000
Solution 34-15

Question 1 Answer A

Cost of resource property 39,600,000

Residual value (1,200,000)

Depletable amount 38,400,000

Depletion rate (38,400,000 / 1,200,000) 32

Depletion for 2010 (120,000 x 32) 3,840,000

Question 2 Answer A

Depreciation of fixed installations (9,600,000 / 1,200,000 = 8 x 120,000) 960,000

Depreciation of equipment (12,400,000 / 4 years) 3,100,000

Total depreciation 4,060,000

The output method is used in depreciating the fixed installations because the life of the resource
property (1,200,000 / 240,000 or 5 years) is shorter than the life of the fixed installations. The straight
line method is used in depreciating the equipment because the life of the equipment of 4 years is
shorter than the life of property of 5 years.

Problem 34-16 (IAA)

On January 1, 2009, Samar Company paid P 5,400,000 for property containing natural resource of
2,000,000 tons of ore. The present value of the estimated cost of restoring the land after the resource
is extracted is P 450,000 and the land will have a value of P 650,000 after it is restored for suitable use.
Tunnels, bunk houses and other fixed installations are constructed at a cost of P 8,000,000 and such
expenditures are charged to mine improvements.

Operations began on January 1, 2010 and resources removed totaled 600,000 tons. During 2011, a
discovery was made indicating that available resource after 2011 will total 1,875,000 tons. At the
beginning of 2011, additional bunk houses were constructed in the amount of P 770,000. In 2011, only
400,000 tons were mined because of a strike.

1. What amount should be recorded as depletion for 2011?

a. 1,560,000
b. 1,040,000
c. 640,000
d. 776,000
 2. What amount should be recorded as depreciation for 2011?

a. 1,120,000
b. 2,400,000
c. 1,600,000
d. 1,360,000

Solution 34-16

Question 1 Answer C

Cost of resource property 5,400,000

Restoration cost 450,000

Total cost 5,850,000

Residual value (650,000)

Depletable amount 5,200,000

Depletion for 2010 (5,200,000 / 2,000,000 = 2.60 x 600,000) 1,560,000

Remaining depletable amount – December 31, 2010 3,640,000

Production in 2011 400,000

Estimated output after 2011 1,875,000

Total estimated output – January 1, 2011 2,275,000

New depletion rate in 2011 (3,640,000 / 2,275,000) 1.60

Depletion for 2011 (400,000 x 1.60) 640,000

Question 2 Answer A

Mine improvements (8,000,000 + 770,000) 8,770,000

Depreciation for 2010 (8,000,000 / 2,000,000 =4 x 600,000) (2,400,000)

Carrying amount – December 31, 2010 6,370,000

New depreciation rate in 2011 (6,370,000 / 2,275,000) 2.80

Depreciation for 2011 (400,000 x 2.80) 1,120,000

Problem 34-17 (IAA)

On January 1, 2010, Mankayan Company purchased land with valuable natural ore deposits for P
10,000,000. The residual value of the land was P 2,000,000. At the time of purchase, a geological survey
estimated a recoverable output of 4,000,000 tons. Early in 2010, roads were constructed on the land to
aid in the extraction and transportation of the mined ore at a cost of P 1,600,000. In 2010, 500,000 tons
were mined. A new survey at the end of 2011 estimated 4,200,000 tons of ore available for mining. In
2011, 800,000 tons were mined and sold.

How much was the 2011 depletion expense?

a. 1,344,000
b. 1,920,000
c. 1,200,000
d. 1,600,000

Solution 34-17 Answer A

Acquisition cost 10,000,000

Development cost 1,600,000

Total 11,600,000
Residual value of land (2,000,000)

Depletable amount 9,600,000

Rate per ton (9, 600,000 / 4,000,000) 2.40

Depletion for 2010 (500,000 x 2.40) 1,200,000

Production in 2011 800,000

Estimated output – December 31, 2011 4,200,000

Total estimate – January 1, 2011 5,000,000

New rate in 2011 (9,600,000 – 1,200,000 / 5,000,000) 1.68

Depletion expense in 2011 (800,000 x 1.68) 1,344,000

Problem 34-18 (IAA)

In 2009, Lepanto Mining Company purchased property with natural resources for P 28,000,000. The
property had a residual value of P 5,000,000. However, the entity is required to restore the property to
its original condition at a discounted amount of P 2,000,000.
In 2009, Lepanto spent P 1,000,000 in development cost and P 3,000,000 in building on the property.
Lepanto does not anticipate that the building will have utility after the natural resources are removed.
In 2010, an amount of P 1,000,000 was spent for additional development on the mine. The tonnage
mined and estimated remaining tons for years 2009 to 2011 are as follows:

Tons extracted Tons remaining

2009 0 10,000,000
2010 3,000,000 7,000,000
2011 3,500,000 2,500,000

What amount should be recognized as depletion for 2011?

a. 10,150,000
b. 11,025,000
c. 15,750,000
d. 9,450,000

Solution 34-18 Answer B

Purchase price 28,000,000

Estimated restoration cost 2,000,000
Development cost – 2009 1,000,000
Development cost – 2010 1,000,000

Total cost 32,000,000

Residual value (5,000,000)

Depletable amount 27,000,000

Rate in 2010 (27,000,000 / 10,000,000) 2.70

Depletion in 2010 (3,000,000 x 2.70) 8,100,000

Tons extracted in 2011 3,500,000

Tons remaining on December 31, 2011 2,500,000

Total estimated output – January 1, 2011 6,000,000

New rate in 2011 (27,000,000 – 8,100,000 / 6,000,000) 3.15

Depletion in 2011 (3,500,000 x 3.15) 11,025,000

Problem 34-19 (PHILCPA Adapted)

Canyon Company purchased in 2010 a property that contained certain mineral deposits for P 9,000,000.
Estimated recovery was 1,000,000 tons of deposits. Development cost of P 300,000 was also incurred in
the same year. The mining property was expected to be worth P 1,200,000 after the mineral deposits
had all been removed. During 2010, the entity extracted and sold 200,000 metric tons of minerals.
Further development cost of P 945,000 was incurred in 2011 and the estimate of total recoverable
deposit including the amount extracted in 2010 was revised to 1,850,000 metric tons. During 2011, the
entity recovered and sold 300,000 tons.

What amount was recorded as depletion expense for 2011?

a. 2,430,000
b. 1,203,000
c. 1,350,000
d. 1,179,000

Solution 34-19 Answer C

Purchase price 9,000,000

Development cost in 2010 300,000

Total cost 9,300,000

Residual value (1,200,000)

Depletable amount 8,100,000

Rate in 2010 (8,100,000 / 1,000,000) 8.10

Depletion in 2010 (200,000 x 8.10) 1,620,000

Depletable amount 8,100,000

Depletion in 2010 (1,620,000)
Development cost in 2011 945,000

Depletable amount – January 1, 2011 7,425,000

Total recoverable deposit 1,850,000

Extracted in 2010 (200,000)

Estimated output – January 1, 2011 1,650,000

New rate in 2011 (7,425,000 / 1,650,000) 4.50

Depletion expense in 2011 (300,000 x 4.50) 1,350,000

Problem 34-20 (ACP)

ABC Company provided the following balances at the end of the current year:

Wasting asset, at cost 80,000,000

Accumulated depletion 20,000,000
Capital liquidated 15,000,000
Retained earnings 10,000,000
Depletion based on 100,000 units extracted at P50 per unit 5,000,000
Inventory of resource deposit (20,000 units) 2,000,000

What is the maximum dividend that can be declared at the end of current year?

a. 14,000,000
b. 30,000,000
c. 10,000,000
d. 15,000,000

Solution 34-20 Answer A

Retained earnings 10,000,000

Accumulated depletion 20,000,000

Total 30,000,000
Less: Capital liquidated 15,000,000
Unrealized depletion in ending inventory
(20,000 x 50) 1,000,000 16,000,000

Maximum dividend 14,000,000

If the maximum dividend is declared, the entry is:

Retained earnings 10,000,000

Capital liquidated 4,000,000
Dividend payable 14,000,000

At this point, the capital liquidated account has a balance of P 15,000,000 plus P 4,000,000 or P
19,000,000. This account is presented as a deduction from total shareholder’s equity.