Question

A coal mine was acquired for $2,000,000. No salvage value was expected, and the company expects to mine 2,000,000 tons of coal. During the first year, it mines and sells 220,000 tons of coal. The depletion expense is

Answer 1

The depletion expense of the coal mine can b calculated using the following formula:

Depletion expense for the year = (Cost of mine – Salvage value) * (Tons of coal sold in the year / Total Tons Capacity of the mine)

Given information:

Cost of mine = $2,000,000

Salvage value = 0

Tons of coal sold in the year = 220,000 tons

Total Tons Capacity of the mine = 2,000,000 tons

So, Depletion expense for the year = (2,000,000-0)*(220,000/2,000,000) = $220,000

Hence, the Depletion expense for the first year is $220,000