When WTA, Inc. purchased rights to extract silver from a mine for a total price of $2.1 million 3 years ago, the estimated 350,000 ounces of silver was to be removed over the next 10 years. A total of 175,000 ounces has been removed and sold thus far. (a) What is the total cost depletion allowed over the 3 years? (b) New exploratory tests indicate that only an estimated 100,000 ounces remain in the veins of the mine. What is the cost depletion factor applicable for the next year?
What will be an ideal response?
(a) CDt = 2,100,000/350,000 = $6.00 per ounce
Cost depletion, 3 years = 6.00(175,000)
= $1,050,000
(b) Remaining investment = 2,100,000 – 1,050,000
= $1,050,000
Remaining silver = 100,000 ounces
New CDt = 1,050,000/100,000
= $10.50 per ounce
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