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Audit of PPE 2

The company purchased a mining property for P16.64 million that contains 12.8 million tons of ore with a residual value of P1.28 million. It also purchased a building for P1.28 million with a 15 year life and no residual value, and machinery for P2.56 million with a 4 year life and P512,000 residual value. In its first year of operations, the company mined 1.28 million tons, sold 1.024 million tons, and had various operating expenses totaling P3.15 million excluding depreciation.

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Raz Mahari
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1K views2 pages

Audit of PPE 2

The company purchased a mining property for P16.64 million that contains 12.8 million tons of ore with a residual value of P1.28 million. It also purchased a building for P1.28 million with a 15 year life and no residual value, and machinery for P2.56 million with a 4 year life and P512,000 residual value. In its first year of operations, the company mined 1.28 million tons, sold 1.024 million tons, and had various operating expenses totaling P3.15 million excluding depreciation.

Uploaded by

Raz Mahari
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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In connection with your audit of the Ponce Mining Corporation for the year ended

December 31, 2006, you noted that the company purchased for P16,640,000
mining property estimated to contain 12,800,000 tons of ore. The residual value of
the property is P1,280,000.
Building used in mine operations costs P1,280,000 and have estimated life of
fifteen years with no residual value. Mine machinery costs P2,560,000 with an
estimated residual value P512,000 after its physical life of 4 years.
Following is the summary of the companys operations for first year of operations.
Tons mined
Tons sold
Unit selling price per ton
Direct labor
Miscellaneous mining overhead
Operating
expenses
(excluding
depreciation)

1,280,000 tons
1,024,000 tons
P4.40
1,024,000
204,800
921,600

Inventories are valued on a first-in, first-out basis. Depreciation on the building is


to be allocated as follows: 20% to operating expenses, 80% to production.
Depreciation on machinery is chargeable to production.
QUESTIONS:
Based on the above and the result of your audit, answer the following: (Disregard
tax implications)
1. How much is the depletion for 2006?
a. P1,228,800
b. P1,536,000
P1,664,000

c. P307,200

2. Total inventoriable depreciation for 2006?


a. P640,000
b. P580,267

c. P614,400

3. How much is the Inventory as of December 31, 2006?


a. P701,440
b. P675,840
c. P680,960
P669,013

d.

d. P0
d.

4. How much is the cost of sales for the year ended December 31, 2006?
a. P2,703,360
b. P2,805,760
c. P2,723,840
d. P2,676,053
5. How much is the maximum amount that may be declared as dividends at the
end of the companys first year of operations?
a. P2,391,040
b. P2,063,360
c. P2,083,840
d. P2,111,147

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