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Every question in the free CPA FAR bank carries a full worked solution. Here is one from the pool:
Question 1
Medium
Which costs are included in the depletable base of a natural resource?
Solution
A is correct.
The depletable base includes the acquisition cost, the development costs incurred to ready the property for extraction, exploration costs to the extent the entity's accounting method capitalizes them, and the present value of any asset retirement (restoration) obligation, reduced by the expected residual value of the land. Exploration costs are not capitalized automatically: under the successful-efforts method, geological and geophysical costs and the costs of dry holes are expensed as incurred, while the full-cost method capitalizes all exploration costs. Extraction equipment is a separate depreciable asset, and restoration is included at present value, not its undiscounted total. See ASC 930 (Extractive Activities, Mining), ASC 932 (Extractive Activities, Oil and Gas), and ASC 410-20 on asset retirement obligations.
The depletable base includes the acquisition cost, the development costs incurred to ready the property for extraction, exploration costs to the extent the entity's accounting method capitalizes them, and the present value of any asset retirement (restoration) obligation, reduced by the expected residual value of the land. Exploration costs are not capitalized automatically: under the successful-efforts method, geological and geophysical costs and the costs of dry holes are expensed as incurred, while the full-cost method capitalizes all exploration costs. Extraction equipment is a separate depreciable asset, and restoration is included at present value, not its undiscounted total. See ASC 930 (Extractive Activities, Mining), ASC 932 (Extractive Activities, Oil and Gas), and ASC 410-20 on asset retirement obligations.
