Chapter 11, Problem 11.7P

1.

To determine

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.

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

Depletion:

Depletion is a concept which is same as depreciation. It is the allocation of cost of natural resources to expense over resource’s the useful time in a systematic and normal manner.

Unit-of-activity Method:

Under this method of depreciation, the depreciation expense is calculated on the basis of units produced in a year. This method is suitable when a company has fluctuating productive rate. The formula to calculate the depreciation expense under this method is as follows:

$\text{Depreciation per unit = }\frac{\text{Cost}-\text{Residual value}}{\text{Estimated units of useful life}}$

To Compute: The depletion on the mine and mining facilities for the year 2018 and for the year 2019.

2.

To determine

To Compute: The book value of the mineral mine as of December 31, 2019.

3.

To determine

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