Question

Glader Minning Co acquired mineral rights for $494,000,000.The mineral deposit is estimated at 475,000,000 tons.During the current year 31,500,000 tons were mined and sold 

(a) Determine the depletion rate

(b) Determine the amount of depletion expense for the current year

 

Answer 1

Depletion : It refers to the process of spreading the cost of extracting natural resources such as coal, mines, and petroleum from the ground in accordance to the number of units extracted.

Depletion cost per unit = Cost of the asset - Residual value  / Estimated number of units

Depletion expense = Depletion cost per unit  x  No. of units extracted and sold

Calculation of Depletion rate 

Depletion rate = Cost of the asset - Residual value / Estimated number of units

=$494,000,000 - $0 / $475,000,000

=$1.04 per ton

Calculation of Depletion expense for the current year

Depletion expense = Depletion rate x No.of tons mined and sold)

                               = $1.04 per ton  x 31,500,000 tons 

                               = $32,760,000

(a) Therefore,Depletion rate is $1.04 per ton

(b)Therefore,amount of depletion expense for the current year is $32,760,000