A&Z incurred $407,500 of capitalized costs to develop a
uranium mine. The corporation’s geologists estimated that the mine
would produce 815,000 tons of ore. During the year, 163,000 tons
were extracted and sold. A&Z’s gross revenues from the sales
totaled $521,600, and its operating expenses for the mine were
$156,480. Calculate A&Z’s depletion deduction.
Solution
Depletion deduction=$114752
Explanation:
A&Z cost depletion is :
=($407500/815000) ×163000
=$81,500
A$z percentage depletion is:
=22% of gross income
=521600×.22
=$114, 752
Percentage depletion is less than 50% of the $365120[(521600-156480) taxable income from the mine]. So A&Z deduct $114,752 (greater of two depletion calculations) as depletion deduction.
A&Z incurred $407,500 of capitalized costs to develop a uranium mine. The corporation’s geologists estimated that th...
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