In 2019, ABC purchased a silver mine for $10,200,000 with removable silver estimated at 1,000,000 tons....

Free

60.1K

Verified Solution

Question

Accounting

In 2019, ABC purchased a silver mine for $10,200,000 withremovable silver estimated at 1,000,000 tons. ABC is required tomitigate environmental damage after mining the silver and expectsto spend $5,105,126.25 five years from now in order to do so. ABC’scost of capital for similar investments is 5%. The property has anestimated value of $500,000 after the gold has been extracted. Thecompany incurred $2,500,000 of intangible development costs gettingthe mine up and running. During 2019, 200,000 tons were removed and150,000 tons were sold.
What is the amount of depletion that ABC should expense for2019?

Answer & Explanation Solved by verified expert

4.1 Ratings (805 Votes)

Purchase price	10,200,000
Add: PV site restoration charges	4,000,000
Less: PV of residual value	(391,763)
Total depreciable value	13,808,237

Life	1,000,000	tons
Used in 2019	200,000	tons

Depreciation	2,761,647


PV factor at 5 years	0.78	A

Site restoration charges	5,105,126.25	B
Residual value	500,000.00	C

PV of Site restoration charges	4,000,000.00	A*B
Residual value	391,763.08	A*C

Units of production is appropriate method in given case for depreciation of assets and accordingly has been used.

Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:

Unlimited Question Access with detailed Answers
Zin AI - 3 Million Words
10 Dall-E 3 Images
20 Plot Generations
Conversation with Dialogue Memory
No Ads, Ever!
Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!

Become a Member

Transcribed Image Text

In 2019, ABC purchased a silver mine for $10,200,000 withremovable silver estimated at 1,000,000 tons. ABC is required tomitigate environmental damage after mining the silver and expectsto spend $5,105,126.25 five years from now in order to do so. ABC’scost of capital for similar investments is 5%. The property has anestimated value of $500,000 after the gold has been extracted. Thecompany incurred $2,500,000 of intangible development costs gettingthe mine up and running. During 2019, 200,000 tons were removed and150,000 tons were sold.What is the amount of depletion that ABC should expense for2019?