Question

1-24 Journa2ny natural resource depletion Cannon Mountain Mining paid $462,300 for the right to extract mineral assets from a 400,000-ton deposit. In addition to the purchase price. Cannon also paid a $900 filing fee, a $1,800 license fee to the state of Nevada, and $55,000 for a geological survey of the property. Because Cannon purchased the rights to the minerals only and did not purchase the land, it expects the asset to have zero residual value. During the first year, Cannon removed and sold 50,000 tons of the minerals. Make journal entries to record (a) purchase of the minerals (debit Minerals), (b) payment of fees and other costs, and (c) depletion for the first year.

Answer 1

Particulars	L.F	Debit	Credit
Minerals.....................Dr.		4,62,300
To Bank			4,62,300
(Being Right to acquire Mineral Asset Acquired)
Filing Fees.....................Dr.		900
License Fees.....................Dr.		1,800
Survey Fees.....................Dr.		55,000
To Bank			57,700
(Being Fees paid for extraction of Minerals Capitalised)
Minerals.....................Dr.		57,700
To Filing Fees			900
To License Fees			1,800
To Survey Fees			55,000
(Being Fees paid Capitalised with minerals)
Depletion.....................Dr.		65,000
To Minerals			65,000
(Being Depletion for Ist Year Recorded)
Total Capitalisation		5,20,000
Total Block (in tons)		4,00,000
Minerals Extracted (in tons)		50,000
Residual Value		Nil
Depletion (On Basis Of Usage)		65,000
Depletion = (Total Capitalisation - Residual Value) * (Minerals Extracted / Total Block)
=(520,000 - 0) * (50,000 / 400,000)
=65,000