In February 2018, Gemstone Industries purchased the Opal Mine at a cost of $20,000,000. The mine...

In February 2018, Gemstone Industries purchased the Opal Mine at a cost of $20,000,000. The mine is estimated to contain 500,000 carats of stone and to have a residual value of $1,000,000 after mining operations are completed. During 2018, 50,000 carats of stone were removed from the mine and sold. In this situation:

A. The book value of the mine is $19,000,000 at the end of 2018.

B. The amount of depletion deducted from revenue during 2018 is $1,900,000.

C. The amount of depletion deducted from revenue during 2018 is $1,000,000.

D. The mine is classified as an intangible asset and amortized over a period not to exceed 40 years.

Solutions

Expert Solution


The amount of depletion deducted from the revenue during 2018 :
		$
Cost of Opal Mine	2,00,00,000
Less: residual Value	-10,00,000
		1,90,00,000

Per carats of stone = 1,90,00000/500000 = $	38

Depletion deducted from revenue during 2018 = Carats of stone removed x per carats of stone
Depletion deducted from revenue during 2018 = 50000 x 38 =	19,00,000	$

So, option B is correct and other option as C is wrong along with option A and D.

Note: Let me know if any other explanation required and kindly rate.

ekkarill92 answered 1 year ago

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