Epson Mining Ltd has economically recoverable reserves of 3 million tonnes of ore.In discovering and developing its mine it has spent $400 000 to acquire the mining site,$600 000 in geological survey costs and $300 000 in excavating an open pit mine.It has also acquired a fleet of trucks to transport the ore,at a total cost of $160 000; the trucks have an estimated life of 5 years and zero residual value.Epson has extracted 300 000 tonnes of ore in its first year of production and expects to mine the same amount each year for the life of the mine.The mine will have no value when the ore has been extracted.In its first year of production,Epson's total expense for amortisation and depreciation should be shown as:

Question

Quizplus · Accepted Answer

- Amortisation of mining site: $400 000 / 10 years = $40 000 per year
- Amortisation of geological survey costs: $600 000 / 10 years = $60 000 per year
- Depreciation of fleet of trucks: $160 000 / 5 years = $32 000 per year

Total amortisation and depreciation expense for the first year:
= $40 000 + $60 000 + $32 000
= $132 000

Since Epson has extracted 300,000 tonnes of ore in its first year, the depletion expense will be:
= (1/10) x (3,000,000 tonnes) x (300,000 tonnes) = $90,000

Therefore, the total expense for amortisation and depreciation is:
= $132,000 + $90,000
= $162,000

Hence, the correct choice is D.

Epson Mining Ltd Has Economically Recoverable Reserves of 3 Million