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Accounting study guide: depreciation

Exercise 1
You have a mine with the following characteristics:
2010 depletion expense:
Cost of natural resources less residual value $ 9,000,000
Land improvementsâ?"roads 975,000
Total cost to be depleted $ 9,975,000

Estimated tons of ore 3,000,000

Depletion cost per tonâ?"$9,975,000/3,000,000= $3.33

Calculate the depletion expense

In 2011, you extract 265,000 tons and engineers estimate that there are 4,500,000 tons remaining in the mine. Calculate the depletion expense for 2011

Exercise 2
You purchase a machine and pay for freight and installation as follows:
. Purchase price $42,000
Freight costs 3,000
Installation costs 1,600
Machine cost $46,600

Calculate the annual depreciation charges
The machines has a scrap vale of $600 and a useful life of 8 years.

b The manager would like to know how much would be the depreciation charge if the machine has an estimated useful life of 32,000 hours and this year it was used 3,000 hrs.

Solution Preview

Exercise 1:

Depletion expense 2011:

Total cost to be depleted: $ 9,975,000
Total ore reserves (estimated and extracted): 4,500,000+265,000 = 4,765,000
Depletion cost per ton: $ 9,975,000 / 4,765,000 = $2.09

Ore extracted in ...

Solution Summary

Depreciation in accounting is examined.

$2.19