On January 1, 2014, Noone 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, Noone expects to be able to sell the land for $400,000 less $150,000 that must be spent on reforestation. Noone 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 depreciation for 2014 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 depreciation of natural resources.

Question

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The Answer of On January 1, 2014, Noone 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, Noone expects to be able to sell the land for $400,000 less $150,000 that must be spent on reforestation. Noone 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 depreciation for 2014 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 depreciation of natural resources.

On January 1, 2014, Noone Industries Invests $2,000,000 in Land