Question

Ceres corporation acquired a mineral mine for $6,000,000 of which $600,000 was ascribed to land value after the mineral has been removed. geological surveys have indicated that 9 million units of the mineral could be extracted. during 2017, 1.8 million units were extracted and 1.2 million units were sold. what is the total amount of depletion recorded in inventory for 2017?

Answer 1

Answer:

$11,880,000

Explanation:

Depletion is an estimated cost of a natural resource that is extracted. This resource is expensed as the extraction is made.

As per given data

Value of Rights = $60,000,000

Land Value = $600,000

As we know land does not depreciate or depleted.

Depletion Value = $60,000,000 - $600,000 = 59,400,000

Estimated resources = 9 million units

Resources extracted in the period = 1.8 million units

Depletion expense is based on ratio of the amount of extraction in period to the total expected resource.

Depletion Expenses = $59,400,000 x 1.8 million units / 9 million units = $11,880,000

Answer 2

Answer:

The total amount of depletion recorded in inventory for 2017 is $ 720,000.

Explanation:

Acording to the details, we have the following:

Cost of mineral mine = $6,000,000

Ascribed Land Value = $600,000

Hence, Depletionable Value =$6,000,000-$600,000=  $5,400,000

The No. of units extracted = 9,000,000 and No. of units sold = 1,200,000

Hence, Depletion Value = (5,400,000/9,000,000)×1,200,000

                                        = $720,000