CPA REVIEW SCHOOL OF THE PHILIPPINES
Manila
FINANCIAL ACCOUNTING AND REPORTING VALIX/VALIX/ESCALA/SANTOS/DELA CRUZ
DEPRECIATION AND DEPLETION
1. On March 31, 2022, an entity purchased a drilling machine for P8,400,000 with useful life of 10 years
and no residual value. An important component of the machine is the drill housing component that will
used to be replaced in 5 years. The P2,000,000 cost of the drill housing component is included in
P8,400,000 cost of the machine. The entity used the straight line depreciation. The fiscal year ends
December 31. What total amount of depreciation should be recorded in 2022?
a. 630,000
b. 840,000
c. 780,000
d. 480,000
2. 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 years’ digits
method. What is the accumulated depreciation on December 31, 2023?
a. 1,600,000
b. 1,800,000
c. 1,000,000
d. 1,250,000
3. An entity purchased a vehicle on January 1, 2022 for P6,000,000 with residual value of P500,000. The
useful life in years is 8 years and useful life in miles is 50,000 miles. The actual miles driven totaled
15,000 in 2022, 10,000 in 2023 and 5,000 in 2024. What is the carrying amount of the asset on December
31, 2023 using the double declining method?
a. 3,375,000
b. 2,175,000
c. 2,625,000
d. 3,250,000
4. An entity showed the following schedule of depreciable assets on January 1, 2022.
Accumulated Acquisition
Asset Cost depreciation date Residual
A 4,000,000 2,560,000 2020 400,000
B 2,000,000 1,440,000 2019 200,000
C 2,800,000 1 344,000 2019 560,000
The useful life of each asset is 5 years. The entity takes a full depreciation in the year of acquisition and
no depreciation in the year of disposition. Asset C was sold for P1,700,000 on June 30, 2022. Asset A is
depreciated under the double declining method.
1. What amount should be reported as depreciation of Asset A for 2022?
a. 1,600,000
b. 1,440,000
c. 416,000
d. 576,000
2. What amount should be reported as depreciation of Asset B for 2022 assuming same method in prior
years?
a. 240,000
b. 480,000
c. 360,000
d. 400,000
3. What amount should be reported as gain on sale of Asset C?
a. 244,000
b. 464,000
c. 356,000
d. 804,000
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5. An entity acquired for P9,000,000 property which is believed to include mineral deposit. Geological
estimates indicated that approximately 1,000,000 tons of mineral may be extracted. It is further estimated
that the property can be sold for P2,500,000 following mineral extraction. After initial acquisition, the
entity incurred exploration cost P3,500,000, development cost related to drilling of wells P3,200,000 and
development cost related to production equipment P4,500,000. The entity is legally required to restore
the land to a condition appropriate for resale at an estimated cost of P1,500,000 and discounted amount
of P800,000. The entity extracted 50,000 tons and sold 40,000 tons during the current year. What amount
should be recorded as depletion included in cost of goods sold?
a. 560,000
b. 700,000
c. 735,000
d. 740,000
6. 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
7. 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 starting July 2022. 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
8. An entity incurred P4,000,000 in exploration cost for each of 15 oil sells drilled in the current year. Of
the 15 wells drilled, 10 were dry holes. The entity used the successful effort method of accounting. The
entity depleted 30% of the oil discovered in the current year. What amount of exploration cost should be
reported in the year-end statement of financial position?
a. 42,000,000
b. 14,000,000
c. 20,000,000
d. 40,000,000
END
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