Sunny Company paid 4,000,000 for property containing natural resources of 2,500,000 tons of ore. The present value of the estimated cost of restoring the land after the resource is extracted is P350,000. The land will have a value of 570,000 after it is restored for suitable use. Tunnels, bunk houses, and other fixed installations are constructed at a cost of 7,000,000, and such expenditures are charged to mine improvements. Operations began on January 1, 2020, and resources removed totaled 500,000 tons. In 2021, a discovery was made indicating that available resources after 2020 will total 1,750,000 tons. At the beginning of 2021, additional bunk houses were constructed in the amount of 650,000. In 2021, only 350,000 tons were mined because of a strike. 1. What is the depletable amount? 2. Using the information from Sunny Company, what is the depletion for 2020? 3. Using the information from Sunny Company, what is the remaining depletable amount after 2020?

Sunny Company paid 4,000,000 for property containing natural resources of 2,500,000 tons of ore. The present value of the estimated cost of restoring the land after the resource is extracted is P350,000. The land will have a value of 570,000 after it is restored for suitable use. Tunnels, bunk houses, and other fixed installations are constructed at a cost of 7,000,000, and such expenditures are charged to mine improvements. Operations began on January 1, 2020, and resources removed totaled 500,000 tons. In 2021, a discovery was made indicating that available resources after 2020 will total 1,750,000 tons. At the beginning of 2021, additional bunk houses were constructed in the amount of 650,000. In 2021, only 350,000 tons were mined because of a strike. 1. What is the depletable amount? 2. Using the information from Sunny Company, what is the depletion for 2020? 3. Using the information from Sunny Company, what is the remaining depletable amount after 2020?

Intermediate Accounting: Reporting And Analysis

3rd Edition

ISBN:9781337788281

Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Chapter11: Depreciation, Depletion, Impairment, And Disposal

Section: Chapter Questions

Problem 13P

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After discovering a new gold vein in the Colorado mountains, CTC Mining Corporation must decide whether to go ahead and develop the deposit. The most cost-effective method of mining gold is sulfuric acid extraction, a process that could result in environmental damage. Before proceeding with the extraction, CTC must spend 900,000 for new mining equipment and pay 165,000 for its installation. The mined gold will net the firm an estimated 350,000 each year for the 5-year life of the vein. CTCs cost of capital is 14%. For the purposes of this problem, assume that the cash inflows occur at the end of the year. a. What are the projects NPV and IRR? b. Should this project be undertaken if environmental impacts were not a consideration? c. How should environmental effects be considered when evaluating this or any other project? How might these concepts affect the decision in part b?
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