In 2014, Nana Company purchased property with natural resources for P12,400,000. The property was relatively close to a large city and had an expected residual value of P3,000,000. However, P1,200,000 will have to be spent to restore the land for use. The following information relates to the use of the property: - In 2014, Nana spent P800,000 in develpment cost and P600,000 in building on the property. Nana does not anticipate that the building will have any utility after the natural resources are depleted. - In 2015 and 2017, P600,000 and P1,600,000 respectively were spent for additional development on the mine - The tonnage mined and estimated remaining tons for years 2014-2018 are as follow: Year Ton Extracted Estimated Tons Remaining 2014 - 5,000,000 2015 1,500,000 3,500,000 2016 1,800,000 2,000,000 2017 1,700,000 900,000 2018 900,000 0 Based on the preceding information, calculate the depletion and depreciation for 2015? Depletion Depreciation a. 3,600,000 180,000 b. 3,240,000 420,000 c. 3,600,000 420,000 d. 3,240,000 180,000
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 2014, Nana Company purchased property with natural resources for P12,400,000. The property was relatively close to a large city and had an expected residual value of P3,000,000. However, P1,200,000 will have to be spent to restore the land for use.
The following information relates to the use of the property:
- In 2014, Nana spent P800,000 in develpment cost and P600,000 in building on the property. Nana does not anticipate that the building will have any utility after the natural resources are depleted.
- In 2015 and 2017, P600,000 and P1,600,000 respectively were spent for additional development on the mine
- The tonnage mined and estimated remaining tons for years 2014-2018 are as follow:
Year Ton Extracted Estimated Tons Remaining
2014 - 5,000,000
2015 1,500,000 3,500,000
2016 1,800,000 2,000,000
2017 1,700,000 900,000
2018 900,000 0
Based on the preceding information, calculate the depletion and
Depletion Depreciation
a. 3,600,000 180,000
b. 3,240,000 420,000
c. 3,600,000 420,000
d. 3,240,000 180,000
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