In: Accounting
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.
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. | |||||||