Question

In January, Arco Company purchased the rights to a natural resource for $3,000,000. The estimated recoverable units from the natural resource amount to 3,000,000 units. During the year, Arco sold 100,000 units of the natural resource at $6 per unit and incurred operating costs other than depletion of $4.50 per unit. Assume a 15 percent specified depletion percentage. Based on these facts, compute the company's depletion deduction using both cost depletion and percentage depletion and choosing the higher figure.

Answer 1

solution

given that

cost of assets =$3,000,000

recoverable units from the regular assets = 3,000,000 units

separated units amid the year = 100,00 units

1)cost of depletion ;

cost of depletion    = cost of asset/recoup units *units sold

=3,000,000/3,000,000*1,00,00

cost of depletion   = $100,000

2)percentage depletion;

net pay for acro organization for moving 100000 units at $6 per unit

= 100000*6

=$600,000

considering

15% indicated rate exhaustion =15/100*600,000

the rate exhaustion amount   =15/100*600000

the rate exhaustion amount  =$90,000

taxable income linestation calculation;

gross income   =  $600000

task costs per unit  =$4.50

for 100,000  it costs  $4.50*100000

=$450000

activity costs before exhaustion conclusion

=gross salary - task costs

=600000-450000

= 150000

[allow in 50%]

in the event that the restriction rate is half of assessable salary, at that point rate consumption impediment

=50/100*1500200

=75000

In this manner the most extreme rate consumption conclusion limitation  = $75,000

cost of consumption = $100000

rate consumption is constrained to $75,000

highec value is cost of depletion    [$100000]