Question

Swifty Mining Company has purchased a tract of mineral land for $1,278,000. It is estimated that this tract will yield 170,400 tons of ore with sufficient mineral content to make mining and processing profitable. It is further estimated that 8,520 tons of ore will be mined the first and last year and 17,040 tons every year in between. (Assume 11 years of mining operations.) The land will have a salvage value of $42,600.

The company builds necessary structures and sheds on the site at a cost of $51,120. 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 $85,200. This machinery cost the former owner $213,000 and was 50% depreciated when purchased. Swifty Mining estimates that about half of this machinery 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.

As chief accountant for the company, you are to prepare a schedule showing estimated depletion and depreciation costs for each year of the expected life of the min
Also compute the depreciation and depletion for the first year assuming actual production of 7,100 tons. Nothing occurred during the year to cause the company engineers to change their estimates of either the mineral resources or the life of the structures and equipment. (Round per unit answers to 2 decimal places, e.g. 0.45 for computational purposes and final answers to O decimal places, e.g. 45,892. 5 to 2. decimal places, e.9. 0.45 for computational purpose Depletion Depreciation
e.

Answer 1

Answert Page No ① O Estimated depletion cent Depletion base = $1048000 – 40600 = $1235400 Estimated yield - 170,400 tons into and "ll th years depletion = Fatimated tons x Per ton value = 8520 tons x '1235400 170400 tons =8520 x $725 = $61770 -10 years 1235400 deplehion = 19040 tones X - 170400 tons 3 - dmshororo = 1040 X $7125 = $.10 3540 Estimated depletion $ 61940 $123540 $123540 $123540 *123540 123540 123540 $ 123540 123540 123540 $ 61190

Page. No @ Estimated depreciation Estimated depreciation cook Year Building Machinery (1/2) $2556 $ 2130 Machinery 11 2 $ 4260 4 260 8520 5112 5112 5112 4260 8520 4260 4260 4260 8520 8520 5112 5112 oth 4 260 7th 5112 4260 8th 5112 9th 10th 11th 5112 5112 4260 4260 4260 2556 2130 Building coot = $51,120 Pen ton mined = . 51120 = $0.3. 170400 ist anth years, cost - $0.3 x 8520 toms ; ' $2556 2-10 yrs i col 0.317040 = $ 5112

Page No ③ . Machinery (1/2) coste 85200 Per for mined - - $ 42600 42600 = $0.25 170400 Isf € with years cort = $0,25 X 8520 tons = $ 2130 Q-10 yrs value = $0.25. X 17040 = $ 4060 Machinery (VD) cost = $42600 Poi ton mined = 42600 xq = $0.50 170400 = $4260 loof year cost = $0.50 X 8520 0-5 years col = $0.50 X 19040 . = $ 8520 : 6th year coof = $0.5 X 8520 3 $4260

Page. No Depletion = Pen ton value X acual production $1235400 x 4100 tons 120400 tons = $7.25 x +100 = $ 51475 i Depletion = $.51475 Disexeciation Building depreciation - $0.30 X 7100 = $ 2130 Machinery depreciation = $0.25 X 7100 = $ 1975 Machinery depreciation = $0.50 X ¥100 L 3550 Total depreciations 2130 +1775+ 3550 = $7455 Depreciation = $ 4455