se after it has extracted the natural resource. Geological surveys estimate that the recoverable reserves will be 5,000,000 tons and that the land will have of P1,000,000 after restoration. Relevant cost information as follows: Land P 9,000,000
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.
2. Cooler Company acquired a tract of land containing an extractable natural resource. Cooler
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 surveys estimate
that the recoverable reserves will be 5,000,000 tons and that the land will have of
P1,000,000 after restoration. Relevant cost information as follows:
Land P 9,000,000
Estimated restoration costs 1,500,000
If Cooler maintains no inventories of extracted material, what should be the depletion
expense per ton of extracted material?
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