Extractor Ltd has carried forward costs of $16 million relating to a gold mine in Western Australia.It owns the site and has completed the first year of production.The revenues from the year's sales are 12 per cent of the total expected revenues based on expected future sales and prices.Five thousand tonnes of gold-bearing deposits were mined during the period out of a total estimate of 70,000 tonnes of reserves.It is expected that it will take 20 years to fully deplete the existing reserves.How much of the carried-forward costs should be allocated to production this period (round to the nearest dollar)?

Question

Quizplus · Accepted Answer

The costs should be allocated based on the proportion of the reserves mined. 5,000 tonnes out of 70,000 tonnes is 1/14th of the reserves. $16 million divided by 14 equals approximately $1,142,857.

Extractor Ltd Has Carried Forward Costs of $16 Million Relating