Question

Gaspe Mining Corporation bought mineral- bearing land for $ 600,000 that engineers estimate will yield 400,000 kilo-grams of economically removable ore. The land will have a value of $ 80,000 after the ore is removed. To work the property, Gaspe built structures and sheds on the site that cost $ 160,000; these will last 10 years, and because their use is confined to mining and it would be expensive to dismantle and move them, they will have no residual value. Machinery that cost $ 144,000 was installed at the mine, and the added cost for installation was $ 3,000.
This machinery should last 15 years; like that of the structures, the usefulness of the machinery is confined to these mining operations. Dismantling and removal costs when the property has been fully worked will approximately equal the value of the machinery at that time; therefore, Gaspe does not plan to use the structures or the machinery after the minerals have been removed. In the first year, Gaspe removed only 12,000 kilograms of ore; however, production was doubled in the second year. It is expected that all of the removable ore will be extracted within eight years from the start of operations.

Required:
Prepare a schedule showing
(1) Unit and total depletion and depreciation and
(2) Net book value of the assets for the first and second years of operation. Use the units- of- production method of depreciation for all assets.



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  • CreatedFebruary 17, 2015
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