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% 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)?
A) $1 142 857
B) $800 000
C) $1 920 000
D) $685 714

Question

Quizplus · Accepted Answer

The allocation of carried-forward costs is based on the proportion of the reserves mined. 5,000 tonnes out of 70,000 tonnes were mined, which is 1/14 or approximately 7.14%. Therefore, 7.14% of $16 million should be allocated, which is approximately $1,142,857.

Extractor Ltd Has Carried Forward Costs of $16 Million Relating