A company acquires a zinc mine at a cost of $750,000 on January 1. At that same time, it incurs additional costs of $100,000 to access the mine, which is estimated to hold 200,000 tons of zinc. The estimated value of the land after the zinc is removed is $50,000. 1. Prepare the January 1 entry(ies) to record the cost of the zinc mine. 2. Prepare the December 31 year-end adjusting entry if 50,000 tons of zinc are mined, but only 40,000 tons are sold the first year.
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.
A company acquires a zinc mine at a cost of $750,000 on January 1. At that same time, it incurs additional
costs of $100,000 to access the mine, which is estimated to hold 200,000 tons of zinc. The estimated value
of the land after the zinc is removed is $50,000.
1. Prepare the January 1 entry(ies) to record the cost of the zinc mine.
2. Prepare the December 31 year-end
tons are sold the first year.
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