Roan Corp. acquired a tract of land containing an extractable natural resource. The company is required by the government to restore the land to a condition suitable for recreational use after it has extracted the natural resource. Geological surveys estimate that the recoverable reserves will be 6.2 million tonnes, and that the land will have a value of $1.2 million after restoration. Relevant cost information follows: Land..............................................$\$ 8,000,000$
Estimated retoration costs..............$2,100,000$ If Roan maintains no inventories, what is the depletion charge per tonne of extracted resource?
A) $1.00
B) $1.32
C) $1.44
D) $1.63

Question

Quizplus · Accepted Answer

Depletion cost per tonne of extracted resource can be calculated as follows:
Depletion cost per tonne = (Land cost - Restoration cost)/Recoverable reserves
= (\$ 8,000,000 - \$ 2,100,000)/6.2 million tonnes
= \$ 1.29 per tonne
However, this only covers the cost of extracting the resource, and does not account for the restoration cost. To factor in the restoration cost, we divide the total cost (land cost + restoration cost) by the recoverable reserves:
Total cost per tonne = (Land cost + Restoration cost)/Recoverable reserves
= (\$ 8,000,000 + \$ 2,100,000)/6.2 million tonnes
= \$ 1.44 per tonne

Therefore, the depletion charge per tonne of extracted resource is $1.44, option C is the correct answer.

Roan Corp Acquired a Tract of Land Containing an Extractable Natural