Question

A company paid $2,000,000 in year 1 for the mining site and spent an additional $500,000 to prepare the mine for extraction of the copper. After the copper is extracted in approximately 10 years, the company expects to have no salvage value for the mine.

What is the amount of depreciation expense per year?

Answer 1

The annual depreciation expense for the mine is $250,000, calculated by dividing the total cost of $2,500,000 by the useful life of 10 years.

Step-by-step explanation:

The company spent $2,000,000 on acquiring the mining site and an additional $500,000 to prepare it for extracting copper, making the total cost $2,500,000. Since the mine is expected to have no salvage value after 10 years, the depreciation expense can be calculated using the straight-line method, which is the cost of the asset minus the salvage value, divided by the useful life of the asset.

In this case, the yearly depreciation expense will be:

Total Cost of Mine / Useful Life = $2,500,000 / 10 years = $250,000 per year

Therefore, the depreciation expense per year for the copper mining site would be $250,000.