Question

The Ophir Mining Company acquired an iron ore deposit for $2,000,000. The company's geologist estimated the deposit to contain 1,500,000 tons of iron ore. Extracting equipment with a 10-year service life and costing $450,000 was installed in the mine. At the end of the first year, 60,000 tons had been extracted. What would be depreciation expense at the end of first year.

Answer 1

*For Extracting Equipment, The rate of amortization is proportional to the amount of natural resource removed,

*(60,000 Tons / 1,500,000 Tons) = 0.04 * 100 = 4%

*The Equipment Amortization is $18,000 ($450,000 x 4%).

Account Title	Debit	Credit
Depreciation Expense	$18,000
Accumulated Depreciation		$18,000

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