Question

In 2019, Lepanto Mining Company purchased property with natural resources for P28,000,000. The property had a residual value of P5,000,000. However, the entity is required to restore the property to the original condition at a discounted amount of P2,000,000.

In 2019, the entity spent P1,000,000 in development costs and constructed a building on the property costing P3,000,000.

The entity does not anticipate that the building will have utility after the natural resources are removed.

In 2020, an amount of P1,000,000 was spent for additional development on the mine.

The tonnage mined and estimated remaining tons are:

	Tons extracted	Tons remaining
2019	0	10,000,000
2020	3,000,000	7,000,000
2021	3,500,000	2,500,000

Prepare journal entries for 2019, 2020 and 2021 based on the transactions.

Answer 1

SOlution:

Journal Entries for 2019,2020 and 2021 as Follows:

Date	Particulars	Debit (P)	Credit (P)
2019	Property A/c	3,00,00,000
	To Cash A/c		3,00,00,000
	(To record Purchase of Property, Where Price is Purchase cost + Decomminsioning Cost)
	(P28000000+P2000000)(NO Depreciation in 2019 as no tons Extracted)
2019	Property A/c	10,00,000
	To Cash A/c		10,00,000
	(To Record Development done on Property)
2019	Building A/c	30,00,000
	To Cash A/c		30,00,000
	(To Record Construction of Building on Property)
2020	Property A/c	10,00,000
	To Cash A/c		10,00,000
	(Being Development done Property)
2020	Depreciation A/c	81,00,000
	TO Property A/c		81,00,000
	(To Record Depreciation in the Ratio of Tons Used)
	(32000000-5000000)*3/10
2020	Depreciation A/c	9,00,000
	To Building A/c		9,00,000
	(To record Depreciation on Building (3000000*3/10)
2021	Depreciation A/c	94,50,000
	TO Property A/c		94,50,000
	(To Record Depreciation in the Ratio of Tons Used)
	(32000000-5000000)*3.5/10
2021	Depreciation A/c	10,50,000
	To Building A/c		10,50,000
	(To record Depreciation on Building (3000000*3.5/10)

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