Carmel Company acquires a mineral deposit at a cost of $5,900,000. It incurs additional costs of $600,000 to access the deposit, which is estimated to contain 2,000,000 tons and is expected to take 5 years to extract. Compute the depletion expense for the first year assuming 418,000 tons were mined.

Question

Quizplus · Accepted Answer

Depletion rate per ton = ($5,900,000 + $600,000) / 2,000,000 tons = $3.25 per ton

Depletion expense for the first year = 418,000 tons x $3.25 per ton = $1,358,500

Carmel Company Acquires a Mineral Deposit at a Cost of $5,900,000