In 2020, Elk Corporation purchased a mine for $200 million (of this, $30 million was applicable to the land). An independent evaluation estimated the mine's reserves at 7.5 million tonnes. During 2020, Elk extracted 900,000 tonnes. Elk's depletion expense for 2020 is

Question

Quizplus · Accepted Answer

The cost of the mine is $200 million - $30 million = $170 million applicable to minerals.

The depletion rate is calculated as cost divided by estimated reserves, which is $170 million divided by 7.5 million tonnes = $22.67 per tonne.

Elk extracted 900,000 tonnes in 2020, so the depletion expense is 900,000 tonnes × $22.67 per tonne = $20,403,000.

Therefore, the depletion expense for 2020 is $20,400,000, which is choice C.

In 2020, Elk Corporation Purchased a Mine for $200 Million