Rachel Timber Inc., a small private company that follows Canadian ASPE, owns 9,000 hectares of timberland purchased in 2001 at a cost of $1,400 per hectare. At the time of purchase, the land without the timber was valued at $420 per hectare. In 2002, Rachel built fire lanes and roads, with a physical life of 30 years, at a cost of $84,000 and separately capitalized these costs. Every year, Rachel sprays to prevent disease at a cost of $3,000 per year and spends $7,000 to maintain the fire lanes and roads. During 2003, Rachel selectively logged and sold 700,000 cubic meters of the estimated 3.5 million cubic meters of timber. In 2004, Rachel planted new seedlings to replace the cut trees at a cost of $100,000.
Instructions
(a) Determine the depletion charge and the portion of depletion included in the cost of timber sold for 2003.
(b) Rachel has not logged since 2003. Assume that Rachel logged and sold 900,000 cubic meters of timber in 2014 and the timber cruiser (the appraiser) had estimated a total resource of 5 million cubic meters. Determine the cost of timber sold that relates to the depletion for 2014.
(c) How would Rachel account for the maintenance costs of the fire lanes and roads and the spraying of the timberland?
(d) Discuss the depreciation methods that Rachel could use to depreciate the cost of the fire lanes and roads.
(e) Explain how your answers for parts (a) to (d) would differ if Rachel were a public company and followed IFRS.