IA 1 - Depletion (CHAP 30)

Question 1

The most common method of computing depletion is

a. Percentage depletion method
b. Decreasing charge method
c. Straight line
d. Production or output method

Answer 1

d. Production or output method

Question 2

Depletion expense

a. Is usually part of cost of goods sold.

b. Includes tangible equipment in the depletable amount.

c. Excludes intangible development cost from the depletable amount.

d. Excludes restoration cost from the depletable amount.

Answer 2

a. Is usually part of cost of goods sold.

Question 3

Information needed to compute a depletion charge per unit includes the

a. Amount of resources sold during the period.

b. Cumulative amount of resources removed.

c. Estimated total amount of resources available.

d. Amount of resources removed during the period.

Answer 3

c. Estimated total amount of resources available.

Question 4

Which accurately describes the GAAP regarding the accounting for the costs of drilling dry holes in the oil and gas industry?

a. Successful effort method
b. Full cost method
c. Both successful effort and full cost
d. Neither successful effort nor full cost method

Answer 4

c. Both successful effort and full cost

Question 5

Which of the following is not part of depletable amount?

a. Acquisition cost of the mineral resource deposit

b. Exploration cost

c. Tangible equipment used to extract the mineral resource

d. Intangible development cost such as drilling and tunnel

Answer 5

c. Tangible equipment used to extract the mineral resource

Question 6

Exploration and evaluation expenditures are incurred

a. When searching for an area that may warrant detailed exploration even though the entity has not yet obtained the legal rights to explore a specific area.

b. When the legal rights to explore a specific area have been obtained but the technical feasibility and commercial viability of extracting a mineral resource are not yet demonstrable.

c. When a specific area is being developed and preparation, for commercial extraction are being made.

d. In extracting mineral resource and processing the resource to make it marketable or transportable.

Answer 6

b. When the legal rights to explore a specific area have been obtained but the technical feasibility and commercial viability of extracting a mineral resource are not yet demonstrable.

Question 7

When is an entity required to recognize exploration and evaluation expenditure as an asset?

a. When such expenditure is recoverable in future periods.

b. When the technical feasibility and commercial viability of extracting the associated mineral resource have been demonstrated.

c. When required by the entity’s accounting policy for recognizing exploration and evaluation-asset.

d. Such expenditure is always expensed as incurred.

Answer 7

c. When required by the entity’s accounting policy for recognizing exploration and evaluation-asset.

Question 8

Which of the following expenditures would never qualify as an exploration and evaluation asset?

a. Expenditure for acquisition of rights to explore

b. Expenditure for exploratory drilling

c. Expenditures related to the development of mineral resource

d. Expenditures for activities in relation to evaluating technical feasibility and commercial viability of extracting a mineral resource

Answer 8

c. Expenditures related to the development of mineral resource

Question 9

An entity is required to consider which of the following developing accounting policy for exploration and evaluation activities?

a. The requirements and guidance in Standards and Interpretations dealing with similar and related issue

b. The definitions, recognition criteria and measurement concepts for assets, liabilities, income, and expenses

c. Recent pronouncements of standard-setting bodies

d. Whether the accounting policy results in information that is relevant and reliable

Answer 9

d. Whether the accounting policy results in information that is relevant and reliable

Question 10

Which of the following is not a disclosure required in relation to exploration and evaluation expenditures?

a. Information about commercial reserve quantity

b. Accounting policy for exploration and evaluation expenditures

c. The amounts of operating and investing cash flows arising from exploration and evaluation of mineral resources

d. Information recognized in the financial statements arising from the exploration and evaluation of mineral resources

Answer 10

a. Information about commercial reserve quantity