In 2017, a company acquired a silver mine for P50,000. In 2018, the company constructed a road to the silver mine costing P5,000,000. Improvements and other development costs made in 2018 cost P750,000. It is estimated that the mine can be sold for P600,000 after mining activities. During 2019, buildings were constructed near the mine to house workers at a total cost of P2,000,000. Residual value of these building amounted to P200,000. In 2020, it was estimated that 4,000,000 tons of silver ore could be removed from the mine for refining. During 2020, the first year of operations, 500,000 tons were removed from the mine, 200,000 of which remained in inventory at the end of the year. In 2021, 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 P1,300,000 were made in early 2021 to facilitate removal of the additional silver. In addition, an additional building was constructed for P375,000, with insignificant residual value. 700,000 tons of silver ore were sold in 2021. FIFO method is used by the entity to measure inventory. Determine: (1) Depletion expense reported in 2020 statement of profit or loss (2) Depletion expense capitalized in ending inventory as of December 31, 2021 (3) Depreciation expense reported in 2021 statement of profit or loss (4) Depreciation expense capitalized in ending inventory as of December 31, 2020
In 2017, a company acquired a silver mine for P50,000. In 2018, the company constructed a road to the silver mine costing P5,000,000. Improvements and other development costs made in 2018 cost P750,000. It is estimated that the mine can be sold for P600,000 after mining activities. During 2019, buildings were constructed near the mine to house workers at a total cost of P2,000,000. Residual value of these building amounted to P200,000. In 2020, it was estimated that 4,000,000 tons of silver ore could be removed from the mine for refining. During 2020, the first year of operations, 500,000 tons were removed from the mine, 200,000 of which remained in inventory at the end of the year. In 2021, 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 P1,300,000 were made in early 2021 to facilitate removal of the additional silver. In addition, an additional building was constructed for P375,000, with insignificant residual value. 700,000 tons of silver ore were sold in 2021. FIFO method is used by the entity to measure inventory. Determine: (1) Depletion expense reported in 2020 statement of profit or loss (2) Depletion expense capitalized in ending inventory as of December 31, 2021 (3) Depreciation expense reported in 2021 statement of profit or loss (4) Depreciation expense capitalized in ending inventory as of December 31, 2020
Chapter1: Financial Statements And Business Decisions
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Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
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In 2017, a company acquired a silver mine for P50,000. In 2018, the company constructed a road to the silver mine costing P5,000,000. Improvements and other development costs made in 2018 cost P750,000. It is estimated that the mine can be sold for P600,000 after mining activities.
During 2019, buildings were constructed near the mine to house workers at a total cost of P2,000,000. Residual value of these building amounted to P200,000.
In 2020, it was estimated that 4,000,000 tons of silver ore could be removed from the mine for refining. During 2020, the first year of operations, 500,000 tons were removed from the mine, 200,000 of which remained in inventory at the end of the year.
In 2021, 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 P1,300,000 were made in early 2021 to facilitate removal of the additional silver. In addition, an additional building was constructed for P375,000, with insignificant residual value. 700,000 tons of silver ore were sold in 2021. FIFO method is used by the entity to measure inventory.
Determine:
(1) Depletion expense reported in 2020 statement of profit or loss
(2) Depletion expense capitalized in ending inventory as of December 31, 2021
(3) Depreciation expense reported in 2021 statement of profit or loss
(4) Depreciation expense capitalized in ending inventory as of December 31, 2020
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