Exhibit 11-04 Kieso Company purchased a tract of land for $4,500,000 in anticipation of extracting 1,425,000 tons of ore. The residual value of the land is expected to be $480,000. The company mines 125,000 tons of ore in the first year.
-Refer to Exhibit 11-04, what is the unit depletion rate?

Question

Quizplus · Accepted Answer

Unit depletion rate is calculated by dividing the cost of the asset (minus residual value) by the estimated units of output.

Cost of asset: $4,500,000 - $480,000 = $4,020,000
Estimated units of output: 1,425,000 tons

Unit depletion rate = $4,020,000 ÷ 1,425,000 tons = $2.82 per ton.

Exhibit 11-04 Kieso Company Purchased a Tract of Land for $4,500,000