PROPERTY, PLANT AND EQUIPMENT

31. Allied Company sought to increase reserves of a special mineral

resource. During 2019, the company purchased a piece of property
that was expected to retain some value after removal of the mineral
resources was complete. Company records reveal the following:

In the year 2019:

Purchase price of property P4,450,000
Estimated supply of mineral resource 3,500,000 tons
Estimated property value after removal of
mineral resource P 650,000
Total resource removal this year 0 tons
In the year 2020:
Capitalized development costs P 750,000
Total resource removal this year 0 tons
In the year 2021:
Total resource removal this year 550,000 tons
In the year 2022:
Estimated total resources to be recovered
in future years (based on new discoveries) 3,660,000 tons
Additional capitalized development costs P 961,000
Total resource removal this year 700,000 tons

Required:
What are the amounts of depletion expense for 2020 and 2021?

32. Ong Exploration Co. purchased in 2019 a property that contained

certain mineral deposits for P45,000,000. Estimated recovery was
10,000,000 metric tons of deposits. Development costs of P1,500,000
were also incurred in the same year, and these were properly
capitalized by the company. The mining property was expected to
 be worth P6,000,000 after the mineral deposits had all been removed,
but will require restoration costs of P2,500,000. Based on the
assessment of the company at the end of 2019, the extraction of
resources from the site will last up to December 31, 2029. The
company established a provision for restoration, discounting the
expected restoration costs at the prevailing interest rate of 8%.

During 2020, the company extracted and sold 1,000,000 metric tons
of mineral. Further development costs of P750,000 were incurred
and capitalized in 2021, and the estimate of total recoverable
deposits (including the amount extracted in 2020) was revised to
9,250,000 metric tons. During 2021, the company recovered
1,500,000 metric tons.

Required:
Determine the depletion expense for 2020 and 2021. (Round off
unit depletion rate to the nearest centavo and round off final
total depletion expense to the nearest peso.)

33. Dungeon Mining constructed a building costing P7,500,000 on a

mine property. The building has an estimated useful life of twelve
years with no residual value. After all the resources are removed,
the building will be of no use and will be demolished by the entity.
The estimated recoverable output from the mine is 1,000,000 tons.

During the first two years, the company extracted 100,000 tons per
year. Changes in the surrounding environment forced the entity to
shut down its operation for the succeeding two years. Thus, there
were no extractions during the third and fourth year. In the fifth year,
the company resumed extractions and produced 150,000 tons. With
improvements in production methods, it is now expected that the
company will extract 150,000 tons per year.
 Required: Determine the following:

a. Depreciation expense for the first two years.

b. Carrying value of the building at the end of fourth year from the
date of acquisition of the building.
c. Depreciation expense for the fifth year.
d. Carrying value of the building at the end of sixth year from the
date of acquisition.

34. The property, plant and equipment section of the statement of

financial position at December 31, 2020 of Yap Machine Shop
appears as follows:

Land P 800,000
Building P1,500,000
Less: Accumulated depreciation 450,000 1,050,000
Equipment P 700,000
Less: Accumulated depreciation 400,000 300,000
P2,150,000

Because of good business conditions, the company decided to move

to a more strategic location. Transactions on the transfer of location
during 2020 are described below:

1. The land and building on the old site were sold for P1,700,000.
2. Equipment with a depreciated value of P150,000 (original cost
P400,000) was sold for P120,000.
3. New equipment with an invoice price of P300,000 was purchased.
A 2% discount was allowed. Delivery of the equipment to the
site was P1,000 paid to the hauler and P3,000 was spent for
installation.
4. The land where the company moved in was given by an associate
of the company president as a gift. It had an appraised value of
P8,000,000. However, the company paid to the BIR P200,000
for taxes on the gift.
5. An old building on the land had to be demolished and the
company paid P240,000 on this.
6. A new equipment with an invoice cost of P150,000 was purchased.
The company paid P103,000 cash and was granted a trade-in
allowance of P47,000 on a used equipment which had a cost of
P40,000 and accumulated depreciation of P15,000.
7. Yap constructed a new building at the new site for P28,000,000.

Required:

a. Prepare journal entries to record the above transactions.

b. What is the net amount of the property, plant and equipment
after considering all the given transactions?
 ANSWERS
31. Allied Company
Purchase price 4,450,000
Less: Residual value -650,000
Development costs incurred and capitalized during 2019 750,000
Depletable cost 1/1/20 4,550,000
Estimated supply of mineral resources ÷3,500,000
Depletion expense per ton in 2020 1.30
Number of tons removed during 2020 550,000
Depletion expense for 2020 715,000

Depletable cost, January 1, 2020 4,550,000

Less : depletion expense for 2020 -715,000
Add development costs incurred and capitalized during 2021 961,000
Depletable cost for 2021 4,796,000
Revised estimated supply of mineral resource, 2021 ÷4,360,000
Revised depletion rate per ton 1.10
Number of tons removed during 2021 700,000
Depletion expense for 2021 770,000

32. Ong Exploration Co.

Purchase price 45,000,000
Development costs 1,500,000
Salvage value -6,000,000
Restoration costs at present value (2,500,000 x 0.4632) 1,158,000
Depletable cost 41,658,000
Estimated recovery from the property 10,000,000
Depletion rate per metric ton 4.1658
Resources extracted during 2020 1,000,000
Depletion expense for 2020 4,165,800

Depletable cost, 2020 41,658,000

Depletion expense for 2020 -4,165,800
Development costs in 2021 750,000
New depletable cost for 2021 38,242,200
Remaining number of metric tons (9,250,000-1,000,000) 8,250,000
 Revised depletion per metric ton (rounded off to the nearest centavo) 4.64
Number of metric tons removed during 2021 1,500,000
Depletion expense for 2021 6,960,000

33. Dungeon Mining

a. 7,500,000/1,000,000 = 7.50/ton
7.50 x 100,000
P750,000 each year
Using the Unit of output method, the depreciation expense for the
first two years are both 750,000

b. Cost 7,500,000
Less depreciation expense for the 1st and 2nd years -1,500,000
Less depreciation for the 3rd and 4th years
6,000,000 / 8 (years) = 750,000
750,000 x 2 years -1,500,000
Carrying value at the end of the 4th year 4,500,000

c. 150,000 tons/ year x 6 years = 900,000

4,500,000/900,000 = 5/ton; 5 x 150,000
Depreciation Expense for the Fifth Year is 750,000

d. Carrying value at the end of the 4th year 4,500,000

Less depreciation expense for the 5th and 6th years -1,500,000
Carrying value of the building at the end of 6th year 3,000,000

34. Yap Machine Shop

a. 1. Cash 1,700,000
Accumulated Depreciation-Building 450,000
Loss on Disposal of Assets 150,000
Land
Building

2. Cash 120,000
Accumulated Depreciation-Equipment 250,000
Loss on Disposal of Assets 30,000
 Equipment

3. Equipment 298,000
Cash

4. Land 8,000,000
Income from Donated Asset
Cash

5. Building 240,000
Cash

6. Equipment 150,000
Accumulated Depreciation-Equipment 15,000
Gain on Disposal of Assets
Equipment
Cash

7. Building 28,000,000
Cash

b. Property, Plant, and Equipment (Net)

Beginning Balance 2,150,000 1,850,000
298,000 150,000
8,000,000
240,000
125,000
28,000,000
38,813,000 2,000,000
36,813,000
 800,000
1,500,000
 400,000

298,000

7,800,000
200,000

240,000

22,000
40,000
103,000

28,000,000

Net)