A coal mine is expected to produce coal for 15 years. Coal production in the first year is estimated at 30,000 tons in the first year and will decrease by a thousand tons annually. The price per tonne of coal is set at $100, while the overall cost of coal mining is estimated to be around $500,000 annually. If the interest rate is 12% per year, what is the total value of the sales of coal for 15 years calculated at this time?

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Depreciation Methods

The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.

Depreciation Accounting

In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.