Last Chance Mine (LCM) purchased a coal deposit for $1,654,350. It estimated it would extract 13,450 tons of coal from the deposit. LCM mined the coal and sold it, reporting gross receipts of $1.35 million, $6.25 million, and $5.2 million for years 1 through 3, respectively. During years 1–3, LCM reported net income (loss) from the coal deposit activity in the amount of ($16,400), $705,000, and $577,500, respectively. In years 1–3, LCM extracted 14,450 tons of coal as follows: (1) Tons of Coal (2) Basis Depletion (2)/(1) Rate Tons Extracted per Year Year 1 Year 2 Year 3 13,450 $1,654,350 $123.00 2,550 7,450 4,450 b. What is LCM's percentage depletion for each year (the applicable percentage for coal is 10 percent)?
Last Chance Mine (LCM) purchased a coal deposit for $1,654,350. It estimated it would extract 13,450 tons of coal from the deposit. LCM mined the coal and sold it, reporting gross receipts of $1.35 million, $6.25 million, and $5.2 million for years 1 through 3, respectively. During years 1–3, LCM reported net income (loss) from the coal deposit activity in the amount of ($16,400), $705,000, and $577,500, respectively. In years 1–3, LCM extracted 14,450 tons of coal as follows:
| (1) Tons of Coal | (2) Basis | Depletion (2)/(1) Rate | Tons Extracted per Year | ||
|---|---|---|---|---|---|
| Year 1 | Year 2 | Year 3 | |||
| 13,450 | $1,654,350 | $123.00 | 2,550 | 7,450 | 4,450 |
b. What is LCM's percentage depletion for each year (the applicable percentage for coal is 10 percent)?
The fixed assets like buildings and machinery are depreciated while the natural resources like minerals, oils, etc. are depleted. The depletion can be defined as the allocating of the cost of natural resources or the expense of extracting natural resources.
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