Question

Problem 11-7 Depletion; change in estimate (L011-3. 11-5) In 2018, the Marion Company purchased and containing a mineral mine for $1,300,000. Additional costs of $493.000 were incurred to develop the mine Geologists estimated that 340.000 tons of ore would be extracted. After the one is removed, the land will have a Tesale value of $110.000 To aid in the extraction Marion built various structures and small storage buildings on the site at a cost of $117300. These structures have a useful life of 10 years. The structures cannot be moved after the one has been removed and will be left at the site. In addition, new equipment costing 566,200 was purchased and installed at the site Marion does not plan to move the equipment to another site. but estimates that it can be sold at auction for $5.000 after the mining project is completed In 2018, 44 000 tons of ore were extracted and sold in 2019, the estimate of total tons of ore in the mine was revised from 340.000 to 427,500. During 2019. 74.000 tonts were extracted of which 54,000 tons were sold. Required: 1. Compute depletion and depreciation of the mine and the mining facilities and equipment for 2018 and 2019. Marion uses the units- of production method to determine depreciation on mining facilities and ecument 2. Compute the book value of the mineral mine structures, and equipment as of December 31, 2019 Complete this question by entering your answers in the tabs below. Required 1 Required 2 Compute depletion and depreciation of the mine and the mining facilities and equipment for 2018 and 2019. Marion uses the units of production method to determine depreciation on mining facilities and equipment. Od not found intermediate calculations.) 2018 2019 Depletion of mineral mine Depreciation of structures Depreciation of equipment Required 2 >

Answer 1

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In 2018 ' The Marion Company purchased land '
containing mineral mines amount to $				1,300,000
Additional cost incurred to develop mines $				493,000
Geologist expect mineral ore Ton				340,000
After ore extracted land resale value would be $				110,000
Additional structure cost ' $				117,300
Udeful life Years				10
New equipment purchased and installed at site $				66,200
estimate that it could be sold @ auction $				5,000
In 2018 total ore extracted and sold Ton				44,000
in 2019 , total Ton of mineral revised from
340000 to 427500
in 2019 , total ore extarcted Ton				74,000
Sale in Ton				54,000

Depletion Vs Depreciation - First calculated depletion in 2018 and 2019 . please see below depletion amount in 2018 and 2019 as below :

Depletion - MINE

Solution	Year 2018			Amnt($)
containing mineral mines amount to $				1,300,000
( Purchase Price)'
Add - Cost incurred further to develop				493,000
Total Cost				1,793,000
Less - Salvage value				110,000
Depreciable Cost				1,683,000	a
Numbe rof ton extracted as certified by- Ton				340,000	b
Geologist
depletion rate				5	(a/b)=C
In 2018 total ore extracted and sold Ton				44,000	D
Depletion cost $				217,800	(C*D)

Year 2019				Amnt($)
Total cost as derived just above				1,793,000
Less depletion amount as calculated above				217800
Balance amount				1,575,200
Less - Salvage value				110,000
Depreciable Cost Balance				1,465,200	m
Extracted Ore after sold 44000 Ton
Balance Ton ( 427500-44000)== 383500 To'n				383500	n
Revised depletion rate				3.82	(m/n)=p
in 2019 , total ore extarcted Ton				74,000	Q
Depletion amount $				282,724	(p*Q)

Depreciation STRUCTURE

Depreciation - 2018'			Amount $
Additional structure cost			117,300	a
Numbe rof ton extracted as certified by- Ton			340,000	b
Depreciation rate - 2018'			0.345	(a/b)=C
In 2018 total ore extracted and sold Ton			44,000	D
Depreciation cost relates 2018			15,180	(c*d)'
Additional structure cost			117,300
Less - depreciation cost ( as above)'			15,180
Balance depreciation cost			102,120	m
Balance Ton ( 427500-44000)== 383500 To'n			383500	n
Depreciation rate - 2019			0.27	(m/n)=p
in 2019 , total ore extarcted Ton			74,000	q
Depreciation cost'- 2019			19,705	(p*q)

Depreciation - Equipment- 2018
			Amount $
New equipment purchased and installed at site $			66,200
Less - Salvage value			5,000
Depreciable cost			61,200	a
Numbe rof ton extracted as certified by- Ton			340,000	b
Depreciation rate			0.18	(a/b)=C
In 2018 total ore extracted and sold Ton			44,000	D
Depreciation cost 2018			7,920	(c*d)
			Amount $
New equipment purchased and installed at site $			66,200
less - depreciation 2018 as calculated above			7,920
Balance amount			58,280
Less - salvage value as above'			5,000
Remaining value			53,280	a
Balance Ton ( 427500-44000)== 383500 To'n			383500	b
revised depreciation rate - Equipment			0.14	(a/b( =C
in 2019 , total ore extarcted Ton			74,000	D
Depreciation cost 2019			10,281	(C*D)

Book Value calculation - three sector based on above Number  

		Mine' $	Structure $	Equipment $
Depletion/ Depreciation-A	2018	217,800	15,180	7,920
Depletion/ Depreciation-B	2019	282,724	19,705	10,281
total /Accumulated depreciation / depletion (A+B)		500,524	34,885	18,201
Original cost of Asset		1793000	117300	66200
Less
Accumulated depreciation/ Depletion- as above		500,524	34,885	18,201
Book Value		1,292,476	82,415	47,999