Answer:
Hecala Mining
a) Hecala will record the mine at a cost of $12600,000
b1) Depletion of Mine for 2021:
= 113,000 * $17.26
= $1,950,380
b2) Depreciation of mining facilities and equipment for 2021:
= 113,000 * $0.23
= $25,990
c) Accretion expense:
= $155,000 * 0.763
= $118,265
d) Yes. The depletion of the mine and the depreciation of the mining facilities and equipment are reported as separate expenses in the income statement.
e1) Depletion of mine in 2022:
= $13.04 * 143,000
= $1,864,720
e2) Depreciation of facilities and equipment:
= $0.17 * 143,000
= $24,310
Explanation:
a) Data and Calculations:
Cost of Mining rights = $10,100,000
Development costs = 2,500,000
Cost of mines = $12,600,000
Construction of facilities = $36,500
Mining equipment = $143,500
Salvage value 12,000
Depreciable value of equipment 131,500
Cost of facilities & equipment $168,000
Geologists production estimate = 730,000 tons
Period of mining = 4 years
b) Cost of Mine Restoration:
Cash Outflow Probability Expected cost
$530,000 40% $212,000
630,000 30% 189,000
730,000 30% 219,000
Costs of Mine Restoration $620,000
Interest rate = 7%
Annual cost of mine restoration = $155,000 ($620,000/4)
c) Depletion of mine based on original output estimate:
= $12,600,000/730,000
= $17.26 per ton
Revised Depletion of mine:
Depleted cost of mine = $12,600,000 - $1,950,380 = $10,649,620
Depleted tons balance = 930,000 - 113,000 = 817,000 tons
Depletion per ton = $10,649,620/817,000 = $13.04 per ton
d) Depreciation rate of facilities and equipment:
= $168,000/730,000
= $0.23 per ton
Revised Depreciation rate:
Cost of facilities and equipment = $142,010 ($168,000 - $25,990)
Rate = $142,010/817,000
= $0.17 per ton
