Question

Zvinakis Mining Company paid $290,000 for the rights to mine lead in southeast Missouri. The cost to drill and erect a mine shaft was $2,490,000, and equipment to process the lead ore before shipment to the smelter was $1,989,000. 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 $159,000 when mining is concluded. The mine started operations on April 30, 2018. In 2018, 390,000 tons of ore were extracted, and in 2019, 790,000 tons were mined.

Required:
1. Compute the depletion rate and the units-of-production depreciation rate.
2. Compute depletion and depreciation for 2018 and 2019.

Compute the depletion rate and the units-of-production depreciation rate.

Depletion rate per ton:

Depreciation rate per ton:

Compute depletion and depreciation for 2018 and 2019.

depletion 2018

depletion 2019

depreciation 2018

depreciation 2019

Answer 1

1
Mineral rights	290000
Add: Mine shaft	2490000
Depletion base	2780000
Divide by Recoverable ore	2000000
Depletion rate per ton	1.390
Mining equipment	1989000
Less: residual value	159000
Depreciable base	1830000
Divide by Recoverable ore	2000000
Depreciation rate per ton	0.915
2
Depletion 2018	542100	=390000*1.39
Depletion 2019	1098100	=790000*1.39
Depreciation 2018	356850	=390000*0.915
Depreciation 2019	722850	=790000*0.915