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16 July, 19:38

On April 17, 2021, the Loadstone Mining Company purchased the rights to a coal mine. The purchase price plus additional costs necessary to prepare the mine for extraction of the coal totaled $6,540,000. The company expects to extract 1,090,000 tons of coal during a four-year period. During 2021, 259,000 tons were extracted and sold immediately.

Required:

1. Calculate depletion for 2021.

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  1. 16 July, 22:41
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    Depletion for 2021 = $1,554,000.

    Explanation:

    Depletion is a non-current expanse that requires an intangible asset to reduce the asset in its useful life.

    Given,

    The purchase price of the coal mine (including additional cost) = $6,540,000.

    Expected useful life = 4 years.

    Expected extraction = 1,090,000 tons. (for 4 years)

    2021 extraction = 259,000 tons.

    We know,

    Depletion expense per unit = purchase price of the coal mine/Expected extraction during the useful life.

    Depletion expense per unit = $6,540,000/1,090,000 = $6 per unit per ton.

    To calculate depletion for 2021, we have to multiply depletion expense by 2021 extraction.

    Depletion for 2021 = $6 * 259,000 tons.

    Depletion for 2021 = $1,554,000.
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