if an entity produces 100 units during the current period and the estimated remainin 598006

Physical units of production method¹¹⁸

If an entity produces 100 units during the current period and the estimated remaining commercial reserves at the end of the period are 1,900 units, the units available would be 2,000. The fractional part of the depreciable basis to be charged to depreciation expense would be 100/2,000. Therefore, if the depreciable basis was 5,000 monetary units, the depreciation for the period would be 250 monetary units.

In applying the physical units of production method a mining company needs to decide whether to use either the quantity of ore produced or the quantity of mineral contained in the ore as the unit of measure.¹¹⁹ Similarly, an oil and gas company needs to decide whether to use either the volume of hydrocarbons or the volume of hydrocarbons plus gas, water and other materials. When mining different grades of ore, a mining company’s gross margin on the subsequent sale of minerals will fluctuate far less when it uses the quantity of minerals as its unit of measure. While a large part of the wear and tear of equipment used in mining is closely related to the quantity of ore produced, the economic benefits are more closely related to the quantity of mineral contained in the ore. Therefore, both approaches are currently considered to be acceptable under IFRS.

(b) Revenue-based units of production method