A gravel pit is purchased for $200,000 and has expected usable gravel equal to 40,000 truck loads,with yearly production as follows (in truck loads): year 1 -10,500 ;year 2 - 9,600 ;year 3 - 8,300 ;year 4 - 6,700 ;year 5 - 4,900.When all the usable gravel has been extracted,the land can be sold for $30,000.What is the book value of the land after 3 years?

Question

Quizplus · Accepted Answer

The book value after 3 years is calculated by subtracting the accumulated depletion from the initial cost. The depletion per truck load is ($200,000 - $30,000) / 40,000 = $4.25. After 3 years, 28,400 truck loads have been extracted, so the accumulated depletion is 28,400 * $4.25 = $120,700. The book value is $200,000 - $120,700 = $79,300.

A Gravel Pit Is Purchased for $200,000 and Has Expected