Question

Gold Alive Corp. (GAC), which reports its financial results in accordance with IFRS, began operating a gold mine on April 1, 20X8. Pertinent details with respect to the mining equipment used by GAC follow:  GAC paid $1,000,000 for the equipment.  GAC estimates that the equipment, which was brought into use when the mine opened, will last approximately eight years based on scheduled production and will have a residual value of $100,000 once production is finished.  GAC depreciates its mining equipment using the units of production method.  GAC estimates that the equipment is capable of processing 20,000 ounces of gold. In 20X8, the mine processed 1,500 ounces of gold. What is the amount that GAC will report as depreciation expense relative to the mining equipment for its year ending December 31, 20X8? a) $50,625 b) $67,500 c) $75,000 d) $84,375

Answer 1

Answer

• Working

Cost	$      1,000,000.00
Residual Value	$          100,000.00
Depreciable base	$          900,000.00
Expected Usage	20,000 ounces of gold
Depreciation per ounce	$                    45.00

• Depreciation expense for 20X8 = 1500 ounce x $ 45

= $ 67,500

• Correct Answer = Option ‘b’ $ 67,500