Question

At the beginning of 2017, Pharoah Company acquired a mine for $680,200. Of this amount, $84,000 was ascribed to the land value and the remaining portion to the minerals in the mine. Surveys conducted by geologists have indicated that approximately 5,040,000 tons of the ore appear to be in the mine. Pharoah incurred $42,000 of development costs associated with this mine prior to any extraction of minerals. It also determined that the fair value of its obligation to prepare the land for an alternative use when all of the mineral has been removed was $17,000. During 2017, 1,010,000 units of ore were extracted and 840,000 of these units were sold.

Compute the total amount of depletion for 2017.

Answer 1

$124,486.51

Step-by-step explanation:

Mineral mine acquisition cost = Total cash paid - Land cost = $680,200 - $84,000 = $596,200

Depletable value of the mineral mine = $596,200 + $42,000 - $17,000 = $621,200

The total amount of depletion for 2017 = (1,010,000/5,040,000) * $621,200 = $124,486.51