On July 23 of the current year, Dakota Mining Co. pays $4,715,000 for land estimated to contain 5,125,000 tons of recoverable ore. It installs and pays for machinery costing $410,000 on July 25. The company removes and sells 480,000 tons of ore during its first five months of operations ending on December 31. Depreciation of the machinery is in proportion to the mine’s depletion as the machinery will be abandoned after the ore is mined. Required Prepare entries to record (a) the purchase of the land, (b) the cost and installation of machinery, (c) the first five months’ depletion assuming the land has a net salvage value of zero after the ore is mined, and (d) the first five months’ depreciation on the machinery. Analysis Component (e) If the machine will be used at another site when extraction is complete, how would we depreciate this machine?
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.
On July 23 of the current year, Dakota Mining Co. pays $4,715,000 for land estimated to contain 5,125,000
tons of recoverable ore. It installs and pays for machinery costing $410,000 on July 25. The company
removes and sells 480,000 tons of ore during its first five months of operations ending on December 31.
Depreciation of the machinery is in proportion to the mine’s depletion as the machinery will be abandoned
after the ore is mined.
Required
Prepare entries to record (a) the purchase of the land, (b) the cost and installation of machinery, (c) the
first five months’ depletion assuming the land has a net salvage value of zero after the ore is mined, and
(d) the first five months’ depreciation on the machinery.
Analysis Component
(e) If the machine will be used at another site when extraction is complete, how would we
machine?
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