Problem 11-5 Khamsah Mining Company has purchased a tract of mineral land for $9
ID: 2578151 • Letter: P
Question
Problem 11-5 Khamsah Mining Company has purchased a tract of mineral land for $900,000. It is estimated that this tract will yield 120,000 tons of ore with sufficient mineral content to make mining and processing proftable. It is further estimated that 6,000 tons of ore will be mined the first and last year and 12,000 tons every year in The land will have a of $30,000. The company builds necessary structures and sheds on the site at a cost of $36,000. It is estimated that these structures can serve 15 years but, because they must be dismantled if they are to be moved, they have no salvage value. The company does not intend to use the buildings elsewhere. Mining machinery installed at the mine was purchased secondhand at a cost of $60,000. This machinery cost the former owner $150,000 and was 50% estimates that about half of this machinery will still be useful when the present mineral resources have been exhausted, but that dismantling and removal costs will ust about offset its value at that time. The company does not intend to use the machinery elsewhere. The remaining machinery will last until about one-half the eciated when purchased. Khamsah Mining esent estimated mineral ore has been removed and will then be worthless. Cost is to be allocated equally between these two classes of machinenyExplanation / Answer
Khamsah Mining Company Estimated Depletion cost Explanation for your understanding Year Depletion 1 43500 Depletion for 1st year = =(900000-30000)*6000/120000 2 87000 Depletion for 2nd year = =(900000-30000)*12000/120000 3 87000 & So forth 4 87000 5 87000 6 87000 7 87000 8 87000 9 87000 10 87000 11 43500 Estimated Depreication Cost Year Building Machinery(1/2) Machinery(1/2) 1 3272.73 2727.27 3000 Depreication on Building =36000/11 years 2 3272.73 2727.27 6000 3 3272.73 2727.27 6000 Depreciation on Machinary lasting till end = 30000/11 years 4 3272.73 2727.27 6000 5 3272.73 2727.27 6000 Depreciation on remaining machinery 6 3272.73 2727.27 3000 for 1st year =30000*6000/60000 7 3272.73 2727.27 for 2nd year =30000*12000/60000 8 3272.73 2727.27 & so forth 9 3272.73 2727.27 10 3272.73 2727.27 11 3272.73 2727.27 36000.00 30000.00 30000.00 Computation of Depreciation & Depletion for the first year Depletion 36250 = =(900000-30000)*5000/120000 Depreciation 8500 = =3272.73+2727.27+30000*5000/60000