Question

A&Z incurred $407,500 of capitalized costs to develop a uranium mine. The corporation’s geologists estimated that the mine would produce 815,000 tons of ore. During the year, 163,000 tons were extracted and sold. A&Z’s gross revenues from the sales totaled $521,600, and its operating expenses for the mine were $156,480. Calculate A&Z’s depletion deduction.

Return to question 9 A&Z incurred $407,500 of capitalized costs to develop a uranium mine. The corporation's geologists estimated that the mine would produce 815,000 tons of ore. During the year, 163,000 tons were extracted and sold. A&Z's gross revenues from the sales totaled $521,600, and its operating expenses for the mine were $156,480. Calculate A&Z's depletion deduction. 2 points Answer is complete but not entirely correct. Depletion deduction $ 81,500

Answer 1

Solution

Depletion deduction=$114752

Explanation:

A&Z cost depletion is :

=($407500/815000) ×163000

=$81,500

A$z percentage depletion is:

=22% of gross income

=521600×.22

=$114, 752

Percentage depletion is less than 50% of the $365120[(521600-156480) taxable income from the mine]. So A&Z deduct $114,752 (greater of two depletion calculations) as depletion deduction.