Question

Foreman mining purchase land containing a copper deposit for 2520000 on January 7th 2021 the company expects to man 710000 tons of copper over in next 10 years in the land is expected to have a residual value of 1455000 the company has also purchase mining equipment for 510000 that will be used only at this side over the 10 years with an estimated residual value of 41400 by the end of the first year the company has mended and sold 61000 tons of copper what is the cost attributed to Copper inventory for 2021 assuming the company uses the units of production method

Answer 1

Depletion rate = (Cost - Residual Value) / Total Mining

= ($2,520,000 - $1,455,000) / 710,000 tons

= $1,065,000 / 710,000

= $1.50 / ton

Depletion expense for 2021 = Depletion rate * 61,000 tons

= $1.50 * 61,000

= $91,500

Depreciation rate = (Cost - Residual Value) / Total Mining

= ($510,000 - $41,400) / 710,000 tons

= $468,600 / 710,000

= $0.66 / ton

Depreciation expense = Depreciation rate * 61,000 tons

= $0.66 * 61,000

= $40,260

Cost attributed to the copper inventory for 2021 is $131,760 ($91,500 + $40,260).