Question

Please show me how to obtain the answer above.

Use the following information for the next four questions In 20X5, Bechom Mining (Beckom) paid $400,000 for a mining property and $100,000 for exploratory rights in Western Australia and spent a further $1.7 million assaying and sampling the local ore body. Having determined that there wee economically recoverable silver reserves of 250,000 ozs, Beckom built access roads and processing plant on site costing S1.2 million. The residual value of all the properties is $150.000. Re-locatable housing was ereeted for $400,000 which was deemed to have a useful life of 10 years. In 20X6, production commenced and the following data applies: 15,500ozs 10,000ozs Ore mined (ozs) Ore sold at $50/oz Production cost (excluding depreciation/amortisationo) $10/oz Administrative expenses Selling expenses Tax S20.000 $9,000 S5,000 7. What would be the value of the inventory extracted in 20X6:? a) $422,800 b) $412,900 c) $399,300 d) $362,500 e) $247,900

Answer 1

Value of Inventory extracted will be cost of production i.e. $10/Oz and Depreciation / amortization allocated to the units extracted i.e. 15500 Ozs. The basis of allocation is and the amount allocated is shown below :

Particulars	Basis/ Calculation	Amount
Mining Property $400000	$400000 / 2,50,000 Oz * 15500 Oz	24800
Exploratory Rights $100000	$100000 / 5 years (being intangible assets)	20000
Assaying & Sampling $ 1.7 Millions	$17,00,000 / 2,50,000 Oz * 15500 Oz	105400
Roads & Processing Plants $1.2 Millions	$12,00,000 / 2,50,000 Oz * 15500 oz	74400
Relocatable House $ 4,00,000	$ 4,00,000 / 10 years (life)	40000
Cost of Production @ $10/Oz	15,500 Oz * $10	1,55,000
	Total	4,19,600

Residual Value of properties $1,50,000

Residual Value to be deducted during the year = $ 150000/250000*15500= 9300

Value of inventory extracted during the year = 419600-9300 = 4,10,300

The amount being nearest to the option is $ 4,12,900. (which should have been due to round off differences in millions, the difference is $2600 which comes to $0.16774 only per unit).