Question

Hasher Company obtained a cool mine in January 2018, incurring cost of land 12,000,000, legal costs of $30,000, registration fees 70,000, building for the employees 250,000, heavy drilling machines 5,000,000 and trucks 1,000,000. The company estimated 5,500,000 TONS in the mine during 10 years operation. The land will cost 2,500,000 to restated at the ending of the project ( the implicit rate 6%) , and expected to sold the land at the end of extractions$ 1,100,000, all other noncurrent assets will have used through the extractions period without any expected salvage value and used the units of activities to allocate their costs. During 2018 the company extracted 700,000 tons and sold 500,000 for $10 each but in 2019 the company extracted 800,000 tons and sold 1,000,000tons for 12$. Required Prepare the necessary journal entries for the years ending December 31/2018, and 2019. Show all computations.

Answer 1

Calculation of Value of Coal Mine to be recognised:

Sl.No	Particulars	Amount
1	Cost of Land	12,000,000
2	Legal Costs	30,000
3	Registration Fee	70,000
4	Cost of Restoration (2,500,000 / (1 + 0.06)^10)	1,395,987
	Cost of Land	13,495,987
	Building	250,000
	Heavy Drilling Machines	5,000,000
	Trucks	1,000,000

Since it is given that for all other non-current assets there is no expected salvage value and used the units of activities to allocate the costs, depreciation of these assets is also based on number of units extracted during the year.

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