At the beginning of 2017, Monty Company acquired a mine for $493,900. Of this am
ID: 2575905 • Letter: A
Question
At the beginning of 2017, Monty Company acquired a mine for $493,900. Of this amount, $101,000 was ascribed to the land value and the remaining portion to the minerals in the mine. Surveys conducted by geologists have indicated that approximately 12,100,000 units of ore appear to be in the mine. Monty incurred $171,700 of development costs associated with this mine prior to any extraction of minerals. It also determined that the fair value of its obligation to prepare the land for an alternative use when all of the mineral has been removed was $40,400. During 2017, 2,619,000 units of ore were extracted and 2,122,000 of these units were sold.
Compute the following.
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At the beginning of 2017, Monty Company acquired a mine for $493,900. Of this amount, $101,000 was ascribed to the land value and the remaining portion to the minerals in the mine. Surveys conducted by geologists have indicated that approximately 12,100,000 units of ore appear to be in the mine. Monty incurred $171,700 of development costs associated with this mine prior to any extraction of minerals. It also determined that the fair value of its obligation to prepare the land for an alternative use when all of the mineral has been removed was $40,400. During 2017, 2,619,000 units of ore were extracted and 2,122,000 of these units were sold.
Compute the following.
Explanation / Answer
1). Total Amount of Depletion for 2017.
Depletion Rate :-
= (Mine cost-land value+obligation prepare the land for an altemative+Development cost)/Total no. of ore Extracted
= ($493900 - $101000 + $40400 + $171700) / 12100000
= $605000 / 12100000
= 0.05 or 5%
Total Amount of Depletion for 2017 :-
= No. of ore extracted * Depletion Rate
= 2619000 * 5%
= $130950
2).
Expense for the Cost of the minerals sold during 2017 :-
= (Total Amount of Depletion for 2017 / No. of ore extracted) * No. of Unit Sold
= ($130950 / 2619000) * 2122000
= $106100
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