Chapter 18 Problem 18-7
Depletion rate (5,000,000 / 1,000,000) 5.00
Depreciation rate (8,000,000 / 1,000,000) 8.00
First year
Depletion (200,000 x 5) 1,000,000
Depreciation (200,000 x 8) 1,600,000
Second year
Depletion (250,000 x 5) 1,250,000
Depreciation (250,000 x 8) 2,000,000
Third year
Depletion none
Depreciation (Schedule A) 550,000
Schedule A – Computation of depreciation for third year
Cost of equipment 8,000,000
Less: Accumulated depreciation 3,600,000 Book value – beginning of third year 4,400,000 Divide by remaining useful life in years (10 – 2) 8 Depreciation for third year 550,000
Fourth year
Depletion (100,000 x 5) 500,000
Depreciation (Schedule B) 700,000
Schedule B – Computation of depreciation for fourth year
Cost of equipment 8,000,000
Less: Accumulated depreciation 4,150,000 Book value – beginning of fourth year 3,850,000
Original estimate of resource deposits 1,000,000 tons
Less: Extracted in first and second years 450,000
Remaining output 550,000 tons
Depreciation rate per unit (3,850,000 / 550,000) 7.00
Depreciation for third year (100,000 x 7) 700,000
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