Question

Problem 11-5 Shamrock Mining Company has purchased a tract of mineral land for $1,044,000. It is estimated that this tract will yield 139,200 tons of ore with sufficient mineral content to make mining and processing profitable. It is further estimated that 6,960 tons of ore will be mined the first and last year and 13,920 tons every year in between. (Assume 11 years of mining operations.) The land will have a salvage value of $34,800. The company builds necessary structures and sheds on the site at a cost of $41,760. It is estimated that these structures can serve 15 years but, because they must be dismantled if they are to be moved, they have no salvage value. The company does not intend to use the buildings elsewhere. Mining machinery installed at the mine was purchased secondhand at a cost of $69,600. This machinery cost the former owner $174,000 and was 50% depreciated when purchased. nery will still be useful when the present mineral resources have been exhausted, but that dismantling and removal costs will just about offset its value at that time. The company does not intend to use the machinery elsewhere. The remaining machinery will last until about one-half the present estimated mineral ore has been removed and will then be worthless. Cost is to be allocated equally between these two classes of machinery.

Answer 1

1.

Year 1 Estimated depletion cost Depletion 50460 100920 100920 100920 100920 100920 100920 100920 100920 100920 50460

Working as follows:

Year 1 Estimated depletion cost Depletion =(1044000-34800)*(6960/139200) =(1044000-34800)*(13920/139200) =(1044000-34800)*(13920/139200) =(1044000-34800)*(13920/139200) =(1044000-34800)*(13920/139200) =(1044000-34800)*(13920/139200) =(1044000-34800)*(13920/139200) =(1044000-34800)*(13920/139200) =(1044000-34800)*(13920/139200) =(1044000-34800)*(13920/139200) =(1044000-34800)*(6960/139200)