Chapter 11, Problem 11.14E

(1)

To determine

Depletion:

Depletion refers to the proportionate allocation of the cost of extracting natural resources to the units extracted.

$\text{Depletion Cost per Unit }=\frac{\text{Cost of the asset }-\text{ Residual value}}{\text{Estimated Number of Units}}$

$\text{Depletion Expense}=\left(\begin{array}{l}\text{Depletion Cost per Unit }\\ \times \text{ Number of units Extracted and Sold}\end{array}\right)$

Depreciation:

Depreciation refers to the reduction in the monetary value of a fixed asset due to its wear and tear or obsolescence. It is a method of distributing the cost of the fixed assets over its estimated useful life. The following is the formula to calculate the depreciation.

$\text{Depreciation cost = }\frac{\text{Cost of the asset-Salvage value}}{\text{Estimated useful life of the asset}}$

To Compute: Depletion and depreciation on the mine and mining equipment for 2016 and 2017 by using the units of production method to calculate depreciation.

(2)

To determine

To explain: The accounting treatment of the depletion and depreciation on the mine and mining equipment.