Zvinakis Mining Company paid $120,000 for the rights to mine lead in southeast M
ID: 2494030 • Letter: Z
Question
Zvinakis Mining Company paid $120,000 for the rights to mine lead in southeast Missouri. The cost to drill and erect a mine shaft was $2,320,000, and equipment to process the lead ore before shipment to the smelter was $1,632,000. The mine is expected to yield 2,000,000 tons of ore during the five years it is expected to be operating. The equipment has an estimated residual value of $142,000 when mining is concluded. The mine started operations on April 30, 2016. In 2016, 220,000 tons of ore were extracted, and in 2017, 620,000 tons were mined.
1. Compute the depletion rate and the units-of-production depreciation rate. (Round your final answers to 3 decimal places.)
2. Compute depletion and depreciation for 2016 and 2017Explanation / Answer
Answer 1 = Depletion Rate Calculation
Amont paid for Right Purchase 120000
Cost of drill & erect machine shaft 2320000
Total Cost 2440000
Total estimated Production : 2000000
Depletion rate = Base cost / production = 2440000/2000000 = $ 1.22 /unit
Depreciation rate calculation on basis of Unit of Production
Depreciation rate = cost of plant- salvage value /total estimated production
= (1632000-142000 ) / 2000000
= 1490000/2000000
= 0.745
Answer 2 : Depletion calculation
Amont paid for Right Purchase 120000
Cost of drill & erect machine shaft 2320000
Total Cost 2440000
Total estimated Production : 2000000
Depletion rate = Base cost / production = 2440000/2000000 = $ 1.22 /unit
Depletion Expenses = unit produced * rate of depetion per unit
Depletion Expenses for 2016 = 220000*1.22
= $ 268,400
Depletion Expenses for 2017 = 620000*1.22
= $ 756,400
Deprecition rate on the basis of unit of Production
Depreciation rate = cost of plant- salvage value /total estimated production
= (1632000-142000 ) / 2000000
= 1490000/2000000
= 0.745
Depreciation = Unit produced/total estimated production * (Plant cost- salvage value)
Depreciation for the period 2016 = 220000/2000000*(1632000-142000)
= $ 163900
Depreciation for the period 2017 = 620000/2000000* (1632000-142000)
= 461900
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