A coal mine was acquired for $2,000,000. No salvage value was expected, and the company expects to mine 2,000,000 tons of coal. During the first year, it mines and sells 220,000 tons of coal. The depletion expense is

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Nina Walls

Business

4 November, 10:03

A coal mine was acquired for $2,000,000. No salvage value was expected, and the company expects to mine 2,000,000 tons of coal. During the first year, it mines and sells 220,000 tons of coal. The depletion expense is

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Kolby Huang · Answer 1

The depletion expense of the coal mine can b calculated using the following formula:

Depletion expense for the year = (Cost of mine - Salvage value) * (Tons of coal sold in the year / Total Tons Capacity of the mine)

Given information:

Cost of mine = $2,000,000

Salvage value = 0

Tons of coal sold in the year = 220,000 tons

Total Tons Capacity of the mine = 2,000,000 tons

So, Depletion expense for the year = (2,000,000-0) * (220,000/2,000,000) = $220,000

Hence, the Depletion expense for the first year is $220,000