During 2014, Corporation acquired a mineral mine for $4,000,000 of which $400,000 was ascribed to land value after the mineral has been removed. Geological surveys have indicated that 10 million units of the mineral could be extracted. During 2014, 1,800,000 units were extracted and 1,500,000 units were sold. What is the amount of depletion expensed for 2014?

Question

Quizplus · Accepted Answer

Depletion per unit = cost of mine / total units of minerals = $4,000,000 / 10,000,000 = $0.40

Depletion expense for 2014 = depletion per unit x units extracted = $0.40 x 1,800,000 = $720,000

However, only 1,500,000 units were sold, so the depletion expense is adjusted for the remaining units (300,000):

Adjusted depletion expense for 2014 = depletion per unit x units sold = $0.40 x 1,500,000 = $600,000

Therefore, the amount of depletion expensed for 2014 is $600,000.

During 2014, Corporation Acquired a Mineral Mine for $4,000,000 of Which