Shine Mining Ltd paid $6 million for a mining property on 1 July 2019 after the geologists of the exploration company estimate that a gold deposit found on the property would produce 40,000 ounces of gold. In each of the years 2019-2020 and 2020-2021, Shine Ltd spent $250,000 per annum developing the property and, during 2020-2021, the company purchased and installed the following assets:

Asset	Cost	Estimated useful life (at 30 June 2021)
Mine building	$500,000	25 years
Mining equipment	$200,000	4 years
Processing equipment	$250,000	10 years

The mine building and mining equipment cannot be economically removed from the mine site, but the processing equipment can be economically removed and used elsewhere. On 30 June 2021, engineers estimate that development and construction activities have resulted in $800,000 worth of restoration costs that Shine Ltd is obligated to spend at the end of the mine’s life under commonwealth legislation. The company nominates a discount rate of 7% as relevant for its gold operations.

Production started on 1 July 2021 and company geologists estimate that it will take eight years to exhaust the economically recoverable reserves. From 1 July 2021 to 30 June 2022, 5,000 ounces of gold were mined.

REQUIRED:

Assume all costs incurred during the exploration and evaluation phases were capitalised, for the year ended 30 June 2022:

a) What are the amortisation rate and amortisation expense?

b) What is the depreciation expense related to mine building?

c) What is the depreciation expense related to mining equipment?

d) What is the depreciation expense related to processing equipment?                                                          

e) What is the finance cost related to the restoration costs?     

Answer rating: 100% (QA)

Answer a Amortization rate Cost of mining Estimated ounce Amount in Cost of mining Paid amou... View the full answer