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    This Study Resource Was: Problem

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    lana del rey
    A natural resource property was purchased for $5 million with estimated deposits of 1 million tons. $8 million was spent on mining equipment expected to exhaust the deposits in 6-8 years. Depletion and depreciation were calculated for 4 years of production: Year 1) 200,000 tons depleted $1 million, depreciated $1.6 million. Year 2) 250,000 tons depleted $1.25 million, depreciated $2 million. Year 3) No depletion, depreciated $550,000. Year 4) 100,000 tons depleted $500,000, depreciated $700,000.

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    This Study Resource Was: Problem

    Uploaded by

    lana del rey
    24 views2 pages
    A natural resource property was purchased for $5 million with estimated deposits of 1 million tons. $8 million was spent on mining equipment expected to exhaust the deposits in 6-8 years. Depletion and depreciation were calculated for 4 years of production: Year 1) 200,000 tons depleted $1 million, depreciated $1.6 million. Year 2) 250,000 tons depleted $1.25 million, depreciated $2 million. Year 3) No depletion, depreciated $550,000. Year 4) 100,000 tons depleted $500,000, depreciated $700,000.

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    Depletion.docx

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    A natural resource property was purchased for $5 million with estimated deposits of 1 million tons. $8 million was spent on mining equipment expected to exhaust the deposits in 6-8 years. Depletion and depreciation were calculated for 4 years of production: Year 1) 200,000 tons depleted $1 million, depreciated $1.6 million. Year 2) 250,000 tons depleted $1.25 million, depreciated $2 million. Year 3) No depletion, depreciated $550,000. Year 4) 100,000 tons depleted $500,000, depreciated $700,000.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    24 views2 pages

    This Study Resource Was: Problem

    Uploaded by

    lana del rey
    A natural resource property was purchased for $5 million with estimated deposits of 1 million tons. $8 million was spent on mining equipment expected to exhaust the deposits in 6-8 years. Depletion and depreciation were calculated for 4 years of production: Year 1) 200,000 tons depleted $1 million, depreciated $1.6 million. Year 2) 250,000 tons depleted $1.25 million, depreciated $2 million. Year 3) No depletion, depreciated $550,000. Year 4) 100,000 tons depleted $500,000, depreciated $700,000.

    Copyright:

    © All Rights Reserved
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    Download as pdf or txt
    of 2

    Problem:

    A natural resource property was purchased by Global Company for P 5,000,000. The
    output was estimated to be 1,000,000 tons.

    Mining equipment was acquired at the cost of P 8,000,000. The equipment has a useful
    life of 10 years but is capable of exhausting the resource in six to eight years.
    Production is as follows:

    First year 200,000 tons


    Second year 250,000 tons
    Third year None
    Fourth year 100,000 tons

    Required:

    m
    er as
    Compute depletion and depreciation for each of the four years.

    co
    eH w
    Solution:

    o.
    Depletion rate rs e (5,000,000/1,000,000) 5.00
    ou urc
    Depreciation rate (8,000,000/1,000,000) 8.00

    First year
    o
    aC s

    Depletion (200,000 x 5) 1,000,000


    vi y re

    Depreciation (200,000 x 8) 1,600,000

    Second year
    ed d

    Depletion (250,000 x 5) 1,250,000


    ar stu

    Depreciation (250,000 x 8) 2,000,000

    Third year
    is

    Depletion none
    Th

    Depreciation (Schedule A) 550,000

    Schedule A – Computation of depreciation for third year


    sh

    Cost of equipment 8,000,000


    Less: Accumulated depreciation 3,600,000
    Carrying amount – beginning of third year 4,400,000
    Divided by remaining useful life in years (10 – 2) 8
    Depreciation for third year 550,000

    This study source was downloaded by 100000808893103 from CourseHero.com on 11-30-2021 16:54:46 GMT -06:00

    https://www.coursehero.com/file/36961043/Depletiondocx/
    Fourth year

    Depletion (100,000 x 5) 500,000


    Depreciation (Schedule B) 700,000

    Schedule B – Computation of depreciation for fourth year

    Cost of equipment 8,000,000


    Less: Accumulated depreciation 4,150,000
    Carrying amount – beginning of fourth year 3,850,000

    Original estimate of resource deposits 1,000,000 tons


    Less: Extracted in first and second years 450,000
    Remaining output 550,000 tons

    Depreciation rate per unit (3,850,000/550,000) 7.00

    m
    er as
    Depreciation for third year (100,000 x 7) 700,000

    co
    eH w
    o.
    rs e
    ou urc
    o
    aC s
    vi y re
    ed d
    ar stu
    is
    Th
    sh

    This study source was downloaded by 100000808893103 from CourseHero.com on 11-30-2021 16:54:46 GMT -06:00

    https://www.coursehero.com/file/36961043/Depletiondocx/
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