Answer:
Cost of Mining Stone pit = $10,500,000
Salvage value at the end of third year = $500,000
Total expected mining during the life = 50,000 tonnes
Depletion per tonne = (cost - salvage) ÷ total expected mining
= (10,500,000 - 500,000) ÷ 50,000
= $200 per tonne
Stone extracted during the year = 10,000 tonnes
Depletion expense of Year 1 = 10,000 tonnes @ 200 per tonne
= $2,000,000
JOURNAL ENTRY:
Depletion expense A/c Dr. $2,000,000
To Accumulated Depletion- Mining rights $ 2,000,000
(To record depletion expense for Year 1)
