Reference no: EM132955080
Question - In 2017, Sunflower Company acquired a silver mine in Eastern Mindanao. Because the mine is located deep in the Mindanao frontier, the entity was able to acquire the mine for the low price of P50,000.
In 2018, Sunflower Company constructed a road to the silver mine costing P5,000,000. Improvements and other development costs made in 2018 cost P750,000.
Because of the improvements to the mine and to the surrounding land, it is estimated that the mine can be sold for P600,000 when mining activities are complete.
During 2019, five buildings were constructed near the mine site to house the mine workers and their families.
The total cost of the five buildings was P2,000,000. Estimated residual value is P200,000.
In 2020 Geologists estimated that 4,000,000 tons of silver ore could be removed from the mine for refining.
During 2020, the first year of operations, only 500,000 tons of silver ore were removed from the mine.
However, in 2021, workers mined 1,000,000 tons of silver. During that same year, geologists discovered that the mine contained 3,000,000 tons of silver ore in addition to the original 4,000,000 tons.
Development costs of P1,300,000 were made to the mine early in 2021 to facilitate the removal of the additional silver.
Early in 2021, an additional building was constructed at a cost of P375,000 to house the additional workers needed to excavate the added silver. This building is not expected to have any residual value.
Required -
-How much should be recognized as depletion for the year 2020?
-How much should be recognized as depletion for the year 2021?