A company purchased a mineral deposit for $800,000. It expects this property to produce 1,200,000 tons of ore and to have a residual value of $50,000. In the current year, the company mined and sold 90,000 tons of ore. Its depletion expense for the current period equals:

Question

Quizplus · Accepted Answer

The depletion expense is calculated by subtracting the residual value from the cost of the mineral deposit and then dividing by the total estimated production to find the depletion cost per unit. Here, ($800,000 - $50,000) / 1,200,000 tons = $0.625 per ton. For 90,000 tons mined and sold, the depletion expense is 90,000 tons * $0.625 = $56,250.

A Company Purchased a Mineral Deposit for $800,000