On April 23, 2018, Trevo s Min ng entered into an ogreement with the state of Ca
ID: 2595734 • Letter: O
Question
On April 23, 2018, Trevo s Min ng entered into an ogreement with the state of Californioto obtain the rights to operate minerel mine in Califo ie for $12 million Additional costs and purchases included the following: Preparation of site for excavation Mining equipnent Construction of various structures on site $4,880,80e 366,800 240,8e0 After the minerals are removed from the mine, the equipment will be sold for an estimated residual value of $60,000. The structures will be torn down. The mine is expected to produce 1,400,000 tons of ore. After the ore is removed, the land will revert back to the state of Colifornis. During 2018, Trevors extrected 210,000 tons of ore from the mine. What total amount would be charged to depletion of the mine and depreciation of the mining equipment and structures for 2018, assuming that Trevors uses the units-of-production method for both depletion and depreciation? (Round your final calculations to the nearest whole thousand dollars.) Multple Choice $2610,000. $2565,000 52520,000. $2501000.Explanation / Answer
Solution:-
1. Amortisation on Rights:-
Cost = $ 120,000,000
Total Output from Mine = 1400000 tons
output in 2018 = 210000 tons
as per units of production method of depreciation, depreciation per tonn of output
= 120000000/1400000 = $8.571429 per tonne
Depletion on Rights = Output in 2018 * Depltion per Tonne
= 210000*8.571429 = $180,000,00
2. Depreciation on Equipment
Cost = $360000
Salvage Value = 60000
Deprecible Value = 360000-60000 =$300000
Depreciation per unit of Output = 300000/1400000 = 0.214286
Depreciation for 2018 = 210000*0.214286 = $45000
3. Depreciation on Site for Excavation:-
Cost = $480,000,00
Depreciation per ton of output = 4800000/140000 = $3.428571
Depreciation for 2018 = 210000*3.428571 = $720,0000
Total Depreciation and Depletion = 1+2+3
= 1800000+ 45000 + 720000 = $2565000
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