Question

ABC Company purchased a mine in 2017 for $3,400,000. It was estimated that the mine contained 200,000 tons of ore and that the mine would be worthless after all of the ore was extracted. The company extracted 25,500 tons of ore in 2017 and 30,000 tons of ore in 2018. In 2017, ABC Company sold 22,000 tons of ore. In 2018, the company sold 15,000 tons of ore. What is book value of the mine at December 31, 2018

Answer 1

$ 2,456,500

Calculations:

Amortization rate (as per Units of production method) = (Cost - salvage value) / Total expected units

A	Cost	$ 3,400,000
B	Residual / Salvage Value	$               -
C	Expected Numer of units	200,000
(A-B)/C	Depreciation Rate	$        17.00

Now,

Year	Expected ouput	Value at the beginning	Depreciation every year	Accumulated depreciation	Value at the end
1	25,500	$                    3,400,000	$                          433,500	$                              433,500	$         2,966,500
2	30,000	$                    2,966,500	$                          510,000	$                              943,500	$         2,456,500

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