A is corrent. The depletion computation is Net cost of resource
Units of resource | = | Depletion charge per unit |
The estimated net cost is the cost of the land ($9,000,000) and the related restoration costs ($1,500,000), less the salvage value of the land ($1,000,000). This results in a net cost of $9,500,000. The estimated recoverable reserves total 5,000,000 tons. Therefore, the depletion charge is $1.90 per ton ($9,500,000/5,000,000). $9,500,000
5,000,000 | = | $1.90 |
Note that depletion cost on extractable natural resources does not become an expense until the mined resource is sold. If some of the extracted material remained in inventory that portion would be an asset, not an expense.B is incorrect. The depletion computation is Net cost of resource
Units of resource | = | Depletion charge per unit |
The estimated net cost is the cost of the land ($9,000,000) and the related restoration costs ($1,500,000), less the salvage value of the land ($1,000,000). This results in a net cost of $9,500,000. The estimated recoverable reserves total 5,000,000 tons. Therefore, the depletion charge is $1.90 per ton ($9,500,000/5,000,000). $9,500,000
5,000,000 | = | $1.90 |
Note that depletion cost on extractable natural resources does not become an expense until the mined resource is sold. If some of the extracted material remained in inventory that portion would be an asset, not an expense.C is incorrect. The depletion computation is Net cost of resource
Units of resource | = | Depletion charge per unit |
The estimated net cost is the cost of the land ($9,000,000) and the related restoration costs ($1,500,000), less the salvage value of the land ($1,000,000). This results in a net cost of $9,500,000. The estimated recoverable reserves total 5,000,000 tons. Therefore, the depletion charge is $1.90 per ton ($9,500,000/5,000,000). $9,500,000
5,000,000 | = | $1.90 |
Note that depletion cost on extractable natural resources does not become an expense until the mined resource is sold. If some of the extracted material remained in inventory that portion would be an asset, not an expense.D is incorrect. The depletion computation is Net cost of resource
Units of resource | = | Depletion charge per unit |
The estimated net cost is the cost of the land ($9,000,000) and the related restoration costs ($1,500,000), less the salvage value of the land ($1,000,000). This results in a net cost of $9,500,000. The estimated recoverable reserves total 5,000,000 tons. Therefore, the depletion charge is $1.90 per ton ($9,500,000/5,000,000). $9,500,000
5,000,000 | = | $1.90 |
Note that depletion cost on extractable natural resources does not become an expense until the mined resource is sold. If some of the extracted material remained in inventory that portion would be an asset, not an expense. |
