A plot of land is purchased for $1.5 million.It is said to contain 300,000 tons of ore.It will take five years to mine all the ore after which the land will be worth $300,000.They expected to mine 60,000 tons of ore in each of the first two years.What is the book value of the mine after two years?

Question

Quizplus · Accepted Answer

The initial value of the mine is $1.5 million. After mining 120,000 tons (60,000 tons per year for 2 years) out of 300,000 tons, 60% of the ore remains. The final land value after mining is $300,000. The total value to be amortized over the ore is $1.5 million - $300,000 = $1.2 million. After two years, 60% of the ore is left, so 60% of the value is left: 60% of $1.2 million = $720,000. Adding the remaining land value of $300,000 gives a total book value of $1,020,000 after two years.

A Plot of Land Is Purchased for $1