Question

A coal mine was acquired at a cost of $4,000,000. No salvage value was expected and the estimated number of units available for production was 4,000,000 tons. During the first year, 440,000 tons of coal was mined and sold. The depletion expense for the first year was

Answer 1

$440,000

Step-by-step explanation:

The depletion of the coal mine can be calculated using the formula below;

Depletion expense for the year

= (Cost of mine - Salvage value) × (Tons of coal sold in the year/Total tons capacity of the mine)

Given that;

Cost of mine =$4,000,000

Salvage value = 0

Tons of coal sold in the year = 440,000 tons

Total tons capacity of the mine = 4,000,000 tons

Therefore,

Depletion expense for the year

= (4,000,000 - 0) × (440,000/4,000,000)

= 4,000,000 × 0.11

= $440,000