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12 November, 12:04

Perez Company acquires an ore mine at a cost of $2,380,000. It incurs additional costs of $666,400 to access the mine, which is estimated to hold 1,700,000 tons of ore. 215,000 tons of ore are mined and sold the first year. The estimated value of the land after the ore is removed is $340,000. Calculate the depletion expense from the information given.

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  1. 12 November, 12:28
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    Depletion expense=$342,000

    Explanation:

    Total cost of purchasing the ore mine;

    Total cost=Purchase cost+access cost

    where;

    Purchase cost=$2,380,000

    Access cost=$666,400

    replacing;

    Total cost = (2,380,000+666,400) = $3,046,400

    Net cost=Total cost-estimated value of land

    where;

    Total cost=$3,046,400

    Estimated value of land=$340,000

    replacing;

    Net cost=3,046,400-340,000=$2,706,400

    Depletion expense=Cost per unit*number of units sold

    where;

    Cost per unit = (2,706,400/1,700,000) = $1.592 per tonne

    Number of units sold=215,000 tons

    replacing;

    Depletion expense = (1.592*215,000) = $342,000

    Depletion expense=$342,000
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