Question

At the beginning of 2020, Vaughn Company acquired a mine for $1,965,400. Of this amount, $115,000 was ascribed to the land value and the remaining portion to the minerals in the mine. Surveys conducted by geologists have indicated that approximately 11,010,000 units of ore appear to be in the mine. Vaughn incurred $195,500 of development costs associated with this mine prior to any extraction of minerals. It also determined that the fair value of its obligation to prepare the land for an alternative use when all of the mineral has been removed was $46,000. During 2020, 2,433,000 units of ore were extracted and 2,081,000 of these units were sold.

Compute the total amount of depletion for 2020.

Answer 1

Answer:

$462,270.00

Explanation:

The first task is to determine the depletion rate per unit of ore extracted from the mine.

depletion rate=total cost the mine/total units of ore extract

total cost of mine=acquisition cost-land value+development costs+removal cost

total cost of mine=$1,965,400-$115,000+$195,500+$46,000=$2,091,900.00  

total units of ore extract is 11,010,000 units

depletion rate= 2,091,900.00/11,010,000=$0.19 per unit of ore

depletion amount in 2020=depletion rate*ore extracted in 2020=2,433,000*$0.19 =$462,270.00  

Answer 2

Answer:

$408,903

Explanation:

Depletion is an estimated cost of a natural resource that is extracted. This resource is expensed as the extraction is made.

As per given data

Total Payment = $1,965,400

Land Value = $115,000

Value of Rights = $1,965,400 - $115,000 = $1,850,400

Estimated resources = 11,010,000 units

Resources extracted in the period = 2,433,000 units

Depletion expense is based on ratio of the amount of extraction in period to the total expected resource.

Depletion Expense = $1,850,400 x 2,433,000 / 11,010,000 units = $408,903