Answer:
The Loadstone Mining Company
1. The depletion for 2021 is:
= $1,500,000.
2. Depletion is considered part of the product cost and included in the cost of inventory.
Explanation:
a) Cost of rights to a coal mine = $6,000,000
Expected tons of coal to be extracted = 1,000,000 tons
Duration of the coal mine = 4 years
Depletion rate per ton = $6 ($6,000,000/1,000,000)
2021 depletion = $6 * 250,000 = $1,500,000
b) Depletion is like depreciation. While depreciation spreads the cost of a tangible asset over its estimated useful life, depletion measures the cost of extracting natural resources based on the number of units extracted vis-a-vis the total quantity available. Amortization is another related term but relates to intangible assets. It is the deduction of the value of an intangible asset over its useful life.
