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    Accounting study guide: depreciation

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    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.

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    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.