On January 1, 2021 Jelly Stone Industries invests $ 2,000,000 in land that includes a stand of timber and the rights to cut the timber. The property is expected to yield 50,000 cubic metres of timber. After the amount of lumber permitted by law has been cut, Jelly Stone expects to be able to sell the land for $ 400,000 less $ 150,000 that must be spent on reforestation. Jelly Stone invests a further $ 300,000 in equipment which is expected to last for the same number of units as the property yields, with no residual value.
Instructions
a) Using the units-of-production method, calculate depletion/depreciation for 2021 on both the timber investment and for the equipment, assuming that 12,000 cubic metres are sawn in the year.
b) Explain why the units-of-production method is considered the most appropriate method for depletion of natural resources.

Question

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The Answer of On January 1, 2021 Jelly Stone Industries invests $ 2,000,000 in land that includes a stand of timber and the rights to cut the timber. The property is expected to yield 50,000 cubic metres of timber. After the amount of lumber permitted by law has been cut, Jelly Stone expects to be able to sell the land for $ 400,000 less $ 150,000 that must be spent on reforestation. Jelly Stone invests a further $ 300,000 in equipment which is expected to last for the same number of units as the property yields, with no residual value.
Instructions
a) Using the units-of-production method, calculate depletion/depreciation for 2021 on both the timber investment and for the equipment, assuming that 12,000 cubic metres are sawn in the year.
b) Explain why the units-of-production method is considered the most appropriate method for depletion of natural resources.

On January 1, 2021 Jelly Stone Industries Invests $ 2,000,000