In January, 2020, Camel Corporation purchased a mine for $2,550,000 with removable ore estimated by geological surveys at 1 million tonnes. The property has an estimated (residual) value of $150,000 after the ore has been extracted. The company incurred $750,000 in development costs preparing the mine for production. During 2020, 250,000 tonnes were removed and 200,000 tonnes were sold. What is the amount of depletion that Camel should expense for 2020?
A) $480,000
B) $600,000
C) $787,500
D) $840,000

Question

Quizplus · Accepted Answer

The depletion base is calculated as follows:
Depletion Base = (Cost of mine + Development costs - Residual value) ÷ Estimated tons of ore
= ($2,550,000 + $750,000 - $150,000) ÷ 1,000,000 tons
= $3.15 per ton

Depletion expense for 2020 is then calculated as:
Depletion expense = Depletion base x Tons extracted and sold in the period
= $3.15 per ton x 200,000 tons sold
= $630,000

Therefore, the amount of depletion that Camel should expense for 2020 is $787,500, which is the depletion expense incurred for the year, with the remaining 50,000 tons to be accounted for in future years.

In January, 2020, Camel Corporation Purchased a Mine for $2,550,000