In 20x1, ABC Mining Corp. acquired the right to use 1,000 acres of land to mine for gold. The leasecost is ₱50,000,000, and the related exploration costs on the property amounted to ₱10,000,000. Itis the policy of ABC Mining Corp. to capitalize all costs of exploration and evaluation of mineralresources. Intangible development costs for drilling, tunnels, shafts, and wells incurred beforeopening the mine amounted to ₱85,000,000. At the end of the mine’s economic useful life, ABCMining Corp. is required by legislation to restore the site. Estimated restoration costs have a fairvalue of ₱5,000,000. ABC Mining Corp. estimates that the mine will provide approximately100,000,000 ounces of gold. ABC extracted 300,000 ounces of gold in 20x2. How much is the depletion charge in 20x2?
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.
In 20x1, ABC Mining Corp. acquired the right to use 1,000 acres of land to mine for gold. The leasecost is ₱50,000,000, and the related exploration costs on the property amounted to ₱10,000,000. Itis the policy of ABC Mining Corp. to capitalize all costs of exploration and evaluation of mineralresources. Intangible development costs for drilling, tunnels, shafts, and wells incurred beforeopening the mine amounted to ₱85,000,000. At the end of the mine’s economic useful life, ABCMining Corp. is required by legislation to restore the site. Estimated restoration costs have a fairvalue of ₱5,000,000. ABC Mining Corp. estimates that the mine will provide approximately100,000,000 ounces of gold. ABC extracted 300,000 ounces of gold in 20x2. How much is the depletion charge in 20x2?
a. 450,000
b. 480,000
c. 360,000
d. 460,000
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