In February 2018, Brilliant Industries purchased the Topaz Mine at a cost of $10,000,000. The mine is estimated to contain 500,000 carats of stone and to have a residual value of $500,000 after mining operations are completed. During 2018, 50,000 carats of stone were removed from the mine and sold. In this situation:

A. The mine is classified as an intangible asset and amortized over a period not to exceed 40 years.

B. The amount of depletion deducted from revenue during 2018 is $950,000.

C. The book value of the mine is $9,000,000 at the end of 2018.

D. The amount of depletion deducted from revenue during 2018 is $1,000,000.

Question

Business

Dayton Sanford

11 February, 18:57

In February 2018, Brilliant Industries purchased the Topaz Mine at a cost of $10,000,000. The mine is estimated to contain 500,000 carats of stone and to have a residual value of $500,000 after mining operations are completed. During 2018, 50,000 carats of stone were removed from the mine and sold. In this situation:

A. The mine is classified as an intangible asset and amortized over a period not to exceed 40 years.

B. The amount of depletion deducted from revenue during 2018 is $950,000.

C. The book value of the mine is $9,000,000 at the end of 2018.

D. The amount of depletion deducted from revenue during 2018 is $1,000,000.

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Answers (1)

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Heidy · Answer 1

B. Depletion will be $950,000 during 2018

Explanation:

Cost $10,000,000

Residual Value ($500,000)

Cost to be depleted $9,500,000

No. of Carats to be extracted over the life of mine 500,000

Per carat depletion (9,500,000/500,000) $19

Depletion for the year 2018 $19*50,000=$950,000

This will be deducted from revenue as depletion for the year. So option B is correct.