Depreciation : Depreciation refers to the reduction in the monetary value of a fixed asset due to its wear and tear or obsolescence. It is a method of distributing the cost of the fixed assets over its estimated useful life. The following is the formula to calculate the depreciation. Depreciation cost = Cost of the asset-Salvage value Estimated useful life of the asset Depletion: Depletion is a concept which is same as depreciation. It is the allocation of cost of natural resources to expense over resource’s the useful time in a systematic and normal manner. Unit-of-activity Method: Under this method of depreciation, the depreciation expense is calculated on the basis of units produced in a year. This method is suitable when a company has fluctuating productive rate. The formula to calculate the depreciation expense under this method is as follows: Depreciation per unit = Cost − Residual value Estimated units of useful life To Compute: The depletion on the mine and mining facilities for the year 2018 and for the year 2019.

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Natural Resource Depletion and Depreciation of Related Plant Assets P5. Bychowski Company purchased land containing an estimated 10 million tons of ore for a cost of $3,300,000. The land without the ore is estimated to be worth $600,000. The company expects that all the usable ore can be mined in 10 years. Buildings costing $300,000 with an estimated useful life of 20 years were erected on the site. Equipment costing $360,000 with an estimated useful life of 10 years was installed. Because of the remote location, neither the buildings nor the equipment has an estimated residual value. During its first year of operation, the company mined and sold 450,000 tons of ore. REQUIRED 1. Compute the depletion charge per ton. 2. Compute the depletion expense that Bychowski should record for the year. 3. Determine the depreciation expense for the year for the buildings, making it pro- portional to the depletion. 4. Determine the depreciation expense for the year for the equipment under two alter-…

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Question

Chapter 11, Problem 11.7P

1.

To determine

Depreciation:

Depreciation refers to the reduction in the monetary value of a fixed asset due to its wear and tear or obsolescence. It is a method of distributing the cost of the fixed assets over its estimated useful life. The following is the formula to calculate the depreciation.

Depreciation cost = Cost of the asset-Salvage valueEstimated useful life of the asset

Depletion:

Depletion is a concept which is same as depreciation. It is the allocation of cost of natural resources to expense over resource’s the useful time in a systematic and normal manner.

Unit-of-activity Method:

Under this method of depreciation, the depreciation expense is calculated on the basis of units produced in a year. This method is suitable when a company has fluctuating productive rate. The formula to calculate the depreciation expense under this method is as follows:

Depreciation per unit = Cost−Residual valueEstimated units of useful life

To Compute: The depletion on the mine and mining facilities for the year 2018 and for the year 2019.

2.

To determine

To Compute: The book value of the mineral mine as of December 31, 2019.

3.

To determine

To Discuss: The accounting treatment of the depletion and depreciation on the mine and mining facilities and equipment.

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Natural Resource Depletion and Depreciation of Related Plant Assets P5. Bychowski Company purchased land containing an estimated 10 million tons of ore for a cost of $3,300,000. The land without the ore is estimated to be worth $600,000. The company expects that all the usable ore can be mined in 10 years. Buildings costing $300,000 with an estimated useful life of 20 years were erected on the site. Equipment costing $360,000 with an estimated useful life of 10 years was installed. Because of the remote location, neither the buildings nor the equipment has an estimated residual value. During its first year of operation, the company mined and sold 450,000 tons of ore. REQUIRED 1. Compute the depletion charge per ton. 2. Compute the depletion expense that Bychowski should record for the year. 3. Determine the depreciation expense for the year for the buildings, making it pro- portional to the depletion. 4. Determine the depreciation expense for the year for the equipment under two alter-…

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