CASE 1

MARIMAR MINING COMPANY has acquired a tract of mineral land for P27,000,000. marimar Mining estimates that the acquired property will yield 150,000 tons of ore with sufficient mineral content to make mining and processing profitable. It further estimates that 7,000 tons of ore will be mined the first and last year and 10,000 tons every year in between (assume 11 years of mining operations). The land will have a residual value of P1,000,000.

Marimar Mining builds necessary structures and sheds on the site at a total cost of P1,200,000. The company estimates that these structures can be used for 15 years but because they must be dismantled 31-Dec-15 31-Dec-14 Net sales 1,650,000 1,200,000 Net purchases 860,000 700,000 Beginning inventory 150,000 230,000 Ending inventory 250,000 160,000 if they are to be moved, they have no residual value. The company does not intend to use the building elsewhere.

Marimar machinery installed at the mine was purchased secondhand at a total cost of P2,000,000. The machinery cost the former owner of P4,600,000 and was 50% depreciated when purchased. Marimar Mining estimates that about half of this machinery will still be useful when the present mineral resources have been exhausted but that dismantling and removal costs will just about offset its value at that time. The company does not intend to use the machinery elsewhere. The remaining machinery will last until about 75% of the mineral ore has been removed and will then be worthless. Cost is to be allocated equally between these two classes of machinery.

Questions: 22. What are the estimated depletion charges for the first year? 23. What are the estimated depreciation charges for the 5th year? 24. What are the estimated depreciation charges for the 11th year? 25. What are the estimated depreciation charges for the first year assuming actual production of P6,000 tons of mineral ore? 26. What are the estimated depreciation charges for the last year assuming actual production of P6,000 tons of mineral ore?