Question

Zvinakis Mining Company paid $130,000 for the rights to mine lead in southeast Missouri. The cost to drill and erect a mine shaft was $2,330,000, and equipment to process the lead ore before shipment to the smelter was $1,653,000. 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 $143,000 when mining is concluded. The mine started operations on April 30, 2018. In 2018, 230,000 tons of ore were extracted, and in 2019, 630,000 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)

Mineral rights	$130,0000
Mine shaft	$2,330,000
Depletion base($130,000 + $2,330,000)	$2,460,000
Recoverable ore (tons)	÷ 2,000,000
Depletion rate per ton	$1.23
Mining equipment	$1,653,000
Less: Residual value	$143,000
Depreciation base	$1,510,000
Recoverable ore (tons)	÷ 2,000,000
Depreciation rate per ton	0.755

2)

Depletion:-
2018: 230,000 × $1.23	$282,900
2019: 630,000 × $1.23	$774,900

Depreciation :-
2018: 230,000 × $0.755	$173,650
2019: 630,000 × $0.755	$475,650