In 2016, Western Maryland Company paid $3,000,000 for a mining tract with reserves of 100,000 tons of ore, which the company planned to mine over a 20-year period. The company spent $500,000 developing the mine. Western plans to spend $200,000 for reclamation when mining has been completed, after which the land will have an estimated value of $600,000. In 2016, Western mined and sold 8,000 tons of ore. What depletion should Western record for the year?

Question

Quizplus · Accepted Answer

To calculate the depletion cost, first, add the purchase price of the mining tract ($3,000,000) to the development cost ($500,000), then subtract the estimated value of the land after reclamation ($600,000) but add the reclamation cost ($200,000). This gives a total cost of $3,100,000. The depletion per ton is $3,100,000 / 100,000 tons = $31 per ton. For 8,000 tons mined and sold, the depletion is 8,000 tons * $31/ton = $248,000.

In 2016, Western Maryland Company Paid $3,000,000 for a Mining