Question

In 2013, the Marion Company purchased land containing a mineral mine for $1,900,000. Additional costs of $753,000 were incurred to develop the mine. Geologists estimated that 460,000 tons of ore would be extracted. After the ore is removed, the land will have a resale value of $100,000. To aid in the extraction, Marion built various structures and small storage buildings on the site at a cost of $186,300. These structures have a useful life of 10 years. The structures cannot be moved after the ore has been removed and will be left at the site. In addition, new equipment costing $86,800 was purchased and installed at the site. Marion does not plan to move the equipment to another site, but estimates that it can be sold at auction for $4,000 after the mining project is completed. In 2013, 56,000 tons of ore were extracted and sold. In 2014, the estimate of total tons of ore in the mine was revised from 460,000 to 547,500. During 2014, 86,000 tons were extracted, of which 66,000 tons were sold. Required: 1. Compute depletion and depreciation of the mine and the mining facilities and equipment for 2013 and 2014. Marion uses the units-of-production method to determine depreciation on mining facilities and equipment. (Do not round intermediate calculations. Round your answers to the nearest dollar amount.) 2013 2014 Depletion of mineral mine $ $ Depreciation of structures $ $ Depreciation of equipment $ $ 2. Compute the book value of the mineral mine, structures, and equipment as of December 31, 2014. (Do not round intermediate calculations. Round your answers to the nearest dollar amount.) Book value Mineral mine $ Structures $ Equipment $

Answer 1

1. Answer

Depletion calculation for the year 2013:

Total cost of mine = $1,900,000 + $753,000 - $100,000 = $2,553,000

Depletion = ($2,553,000/460,000 tons) * 56,000 tons = $310,800

Depletion calculation for the year 2014:

Total cost of mine = $1,900,000 + $753,000 - $100,000 = $2,553,000

Depletion recorded in 2013 = $310,800

Therefore, remaining value of mine to be depleted = $2,553,000 - $310,800 = $2,242,200

Revised total tons of ore to be produced from the mine = 547,500 tons

Tons of ore already produced in 2013 = 56,000 tons

Therefore remaining tons of ore to be produced = 547,500 tons - 56,000 tons = 491,500 tons

Depletion in 2014 = ($2,242,200/491,500 tons) *86,000 tons = $392,328

Depreciation for structure for the year 2013:

= ($186,300/460,000 tons) * 56,000 tons = $22,680

Depreciation for structure for the year 2014:

Total cost of structure = $186,300

Depreciation recorded in 2013 = $22,680

Therefore, remaining value of structure to be depreciated = $186,300 - $22,680 = $163,620

Revised total tons of ore to be produced from the mine = 547,500 tons

Tons of ore already produced in 2013 = 56,000 tons

Therefore remaining tons of ore to be produced = 547,500 tons - 56,000 tons = 491,500 tons

Depreciation in 2014 = ($163,620/491,500 tons) *86,000 tons = $28,629

Depreciation for Equipment for the year 2013:

Cost of the equipment = $86,800 - $4,000 = $82,800

Therefore depreciation = ($82,800/460,000 tons) * 56,000 tons = $10,080

Depreciation for Equipment for the year 2014:

Total cost of Equipment = $82,800

Depreciation recorded in 2013 = $10,080

Therefore, remaining value of equipment to be depreciated = $82,800 - $10,080 = $72,720

Revised total tons of ore to be produced from the mine = 547,500 tons

Tons of ore already produced in 2013 = 56,000 tons

Therefore remaining tons of ore to be produced = 547,500 tons - 56,000 tons = 491,500 tons

Depreciation in 2014 = ($72,720/491,500 tons) *86,000 tons = $12,724

2. Answer

Book value of mineral mine as at 31 December 2014:

Total cost of mine (without considering salvage value) = $1,900,000 + $753,000 = $2,653,000

Depletion in 2013 = $310,800

Depletion in 2014 = $392,328

Therefore book value = $1,949,872

Book value of structure as at 31 December 2014:

Total cost of structure = $186,300

Depreciation in 2013 = $22,680

Depreciation in 2014 = $28,629

Therefore book value = $134,991

Book value of equipment as at 31 December 2014:

Total cost of equipment (without considering the salvage value) = $86,800

Depreciation in 2013 = $10,080

Depreciation in 2014 = $12,724

Therefore book value = $63,996