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Depreciation and Depletion

The document discusses depreciation and depletion accounting concepts through multiple choice questions related to calculating depreciation and depletion amounts for various assets over time periods using different methods like straight line, composite, sum of years digits, and double declining balance.

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Ombra Umabong
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250 views2 pages

Depreciation and Depletion

The document discusses depreciation and depletion accounting concepts through multiple choice questions related to calculating depreciation and depletion amounts for various assets over time periods using different methods like straight line, composite, sum of years digits, and double declining balance.

Uploaded by

Ombra Umabong
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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Depreciation and Depletion

1. An entity provided the following schedule of machinery:


Total cost Residual value Useful life
Machine A 5,500,000 500,000 20
Machine B 2,000,000 200,000 15
Machine C 400,000 5
What is the composite life of these assets?
a. 13.3
b. 16.0
c. 18.0
d. 19.8

2. An entity used the composite method of depreciation based on a 25% composite rate. On January 1, 2022, the total cost
of equipment was P5,000,000 with total residual value of P600,000 and accumulated depreciation of P3,000,000. In
January 2022, the entity purchased an equipment for P2,500,000 with no residual value. On December 31, 2022, the entity
sold an equipment costing P1,000,000 for P350,000. The said equipment was acquired on January 1, 2020 with residual
value of P200,000. What amount of depreciation should be recognized for 2022?
a. 1,625,000
b. 1,875,000
c. 1,525,000
d. 1,000,000

3. On April 1, 2022, an entity purchased machinery for P3,300,000. The machinery had an estimated useful life of five years
with residual value of P300,000. Depreciation was computed by the sum of the years’ digits method. What is the
depreciation for 2023?
a. 850,000
b. 800,000
c. 600,000
d. 700,000

4. An entity purchased equipment on January 1, 2022 for P5,000,000. The equipment had a useful life of 5 years and
residual value of P600,000. The policy is to depreciate 5-year asset using the 200% double-declining method for the first 2
years and then switch to straight line. What amount should be reported as accumulated depreciation on December 31,
2024?
a. 3,000,000
b. 3,800,000
c. 3,920,000
d. 3,600,000

5. An entity takes a full year depreciation in the year of acquisition and no depreciation in the year of disposition. Data
relating to a depreciable asset on December 31, 2021 are cost P5,500,000, residual value P1,000,000, accumulated
depreciation P3,600,000 and useful life 5 years. The asset was acquired on July 1, 2019.
Using the same depreciation method in 2019, 2020 and 2021, what amount of depreciation should be recorded in 2022?
a. 1,100,000
b. 1,200,000
c. 900,000
d. 600,000

6. On January 1, 2022, an entity purchased a mineral mine for P26,400,000 with removable ore estimated at 1,200,000
tons. After it has extracted all the ore, the entity will be required by law to restore the land to the original condition at an
estimated cost of P2,100,000. The present value of the estimated restoration cost is P1,800,000. The property can be sold
afterwards for P3,000,000. During 2022, the entity incurred P2,000,000 exploration cost and P1,600,000 development cost
preparing the mine for production. The entity removed 100,000 tons of ore and sold 90,000 tons of ore in the current year.
What amount of depletion should be included in cost of goods sold for the current year?
a. 2,400,000
b. 2,160,000
c. 2,182,500
d. 2,385,000

7. In 2022, an entity purchased property with mineral resources for P28,000,000. The property had a residual value of
P4,000,000. During 2022, an amount of P3,000,000 was spent for roads and other improvements to aid in the extraction
of the resources. Tunnels, bunk houses and other fixed installations were also constructed at a cost of P8,000,000. The
entity spent P1,000,000 in development cost and P4,000,000 in exploration cost. Production began in 2023 and the tons
extracted totaled 3,000,000 in 2023 and 2,500,000 in 2024. The remaining tons totaled 7,000,000 on December 31, 2023
and 5,500,000 on December 31, 2024.
1. What amount of depletion should be recognized in 2023?
a. 12,000,000
b. 10,800,000
c. 9,600,000
d. 8,700,000
2. What amount of depletion should be reported for 2024?
a. 7,000,000
b. 6,350,000
c. 8,750,000
d. 7,875,000

8. On July 1, 2022, an entity purchased the rights to a mine for P20,000,000, of which P2,000,000 was allocable to the land.
Estimated reserves were 1,500,000 tons. The entity expected to extract and sell 20,000 tons per month. The entity
purchased mining equipment on July 1, 2022 for P8,000,000. The mining equipment had a useful life 8 years. However,
after all the resource is removed, the equipment will be of no use and will be sold for P500,000.

1. What amount should be reported as depletion for 2022?


a. 2,880,000
b. 1,440,000
c. 2,250,000
d. 1,125,000
2. What amount should be reported as depreciation for 2022?
a. 1,500,000
b. 1,200,000
c. 600,000
d. 468,750

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