Land with an estimated 2.5 million tons of ore for a cost of $4,400,000. Land without the ore is estimated to be worth $250,000. During it's first year of operation,the company mined and sold 375,000 tons of ore. Compute the depletion charge per ton. Compute the depletion expense that should be recorded.:confused: I'm guesing I should subtract 375,000 from 2.5 million which leaves 2,125,000. From here I'm lost just need starter help I hope:) Not sure where the $250,000comes in at maybe I take it away from the $4,400,000:rolleyes:

Right - take the $250,000 off the $4,400,000. That gives the total that will be depleted over time. The $250,000 is the value of the land that you will have remaining after that. As to how much to deplete, if you have 2.5 million tons total and you mined 375,000 tons - what percent did you mine?

I come up with 9.4% I rounded up if I did this right.

It looks like you divided the 375,000 by (4,400,000-250,000). Read what I wrote again:

As to how much to deplete, if you have 2.5 million tons total and you mined 375,000 tons - what percent did you mine?


Let's put it in easy numbers so it makes sense to you. If you have 1 million tons of ore and you mined 500,000 - you would have depleted 50% of your mine. You are looking for the percentage of ore mined versus the total amount of ore.

In all honesty I do not know how to do this I come up with .15
Maybe I need a basic math refresher how do you do percentages?

15% is correct. You now want to deplete 15% of that value of the mine minus the land value.

If you are confused about the 15% I can try and explain it. I'm guessing since you got it you understand?

Ok I guess I do remember how to do percentages. (2,125,000 * .15)=622500
2,125,000-622,500=1402,500

375,000/2,500,000 = .15

That is the amount of tons of ore that are depleted. Now you have to find the value of that amount. The whole mine is worth $4.4 million but $250,000 is the value of the land when the mine is completely depleted, so you want to subtract that from the total amount to be depleted.

I think it would be 3,527,500. I'm confused

I think I know what you may be saying.
660,000-250,000=410,000 would be the amount to be depleted

No. The total value of the mine is $4.4 million. $250,000 of that is the value of the land without the ore. The value to be depleted is therefore $4,150,000 ($4,400,000 - 250,000). You want to deplete 15% this year based of the percentage of ore mined to the total ore.

It's similar to assets, salvage value, and depreciation.

Thank you :) In all fairness to you I will work on this and refresh my information then I will post my answers then we can work through them.

Thanks for waiting. I haven't had any luck with this problem. I don't understand I don't have an example in my text.
Do I multply 15% x 360=5400 that's a year
I have no clue what salvage value means. I'm sorry we have not gone over this in class. I could add the 5400 to the 375,000=380,400
Then take that away from the 2,500,000
2,129,500.
Maybe if you wouldn't mind showing me an example I could get this. I'm really stressed out on this one. I know it's going to be simple :)

I tried this have no clue what I'm doing.
4,400,000-250,00/2,500,000=1.66
So maybe the charge is $1.66 a ton
Am I getting any closer.
Now as far as the expense goes I'll try
Would that be the amount of ore mine for the year or am I way off base with all this

I mean ore mined375,000 times 1.66= $ 622,500

Let me give you an example. Say you had the following numbers:

$3,000,000 Value of mine and land
$200,000 Value of land
2,000,000 Tons of estimated total ore
400,000 Tons mined in current year

The total you will deplete over time is $3,000,000 less the $200,000, so $2,800,000. The idea is to write this off as the ore is mined so when the ore is complety mined and only the land is left, your remaining value will be $200,000. You write it off as the percentage mined each year. In the current year, you will write off 20% because you mined 400,000 of 2,000,000 tons - or 20% (400,000/2,000,000). So, 20% times $2,800,000 tells you that you will write off $560,000 in the current year.

So instead of multplying the cost of ton. I multply 15% * 4,150,000=622,500 this is the amount I wwould be writing off. Because I'm using the percentage mined each yea I think your example has helped me. I copied and pasted it so I could always have it for a guide.

Yes, that is right.

I wanted to let you know that I will be out of town for a while (June 12-July 10). I won't be on the board and I didn't want you to wonder if I didn't respond. There are a couple of people that answer questions in this forum so I hope you will get the help you need. Good luck.

Thank you,for letting me know I'm working straight-line method Production method and Double-declining balance method now doing for four years going well so far. I would have wonder what happen to you. Have a safe trip and lots of fun.