Question

Zvinakis Mining Company paid $300,000 for the rights to mine lead in southeast Missouri. The cost to drill and erect a mine shaft was $2,500,000, and equipment to process the lead ore before shipment to the smelter was $2,010,000. The mine is expected to yield 2,000,000 tons of ore during the five years it is expected to be operating. The equipment has an estimated residual value of $160,000 when mining is concluded. The mine started operations on April 30, 2018. In 2018, 400,000 tons of ore were extracted, and in 2019, 800,000 tons were mined. Required: 1. Compute the depletion rate and the units-of-production depreciation rate. 2. Compute depletion and depreciation for 2018 and 2019.

Answer 1

1. Compute the depletion rate and the units-of-production depreciation rate.

Mineral Right	300,000
Add
Mineral Shaft	2,500,000
Deplition base	2,800,000
Divided by
Recoverable Ore (tons)	2,000,000
Depletion rate per tone	1.4

Mining Equipment	2,010,000
Less: Residual value	160,000
Depreciable base	1,850,000
Divided by
Recoverable Ore (tons)	2,000,000
Depreciation rate per tone	0.925

2. Compute depletion and depreciation for 2018 and 2019.

Depletion for 2018 and 2019
2018 (400,000*1.4)	560000
2019(800,000*1.4)	1120000

Depreciation for 2018 and 2019
2018(400,000*0.925)	370000
2019(800,000*0.925)	740000