# What is process in calculating depletion of mine?

Solution

The solution is given below −

Cost = (175000 + 45000 – 0)/95000

= $2.32 per ton Depletion of mine =$ 2.32 * 60000

= $139200 Depletion expenses = total depletion of mine – depletion (unsold) = 139200 – (2.32 * 15000) =$ 104400

b) Calculate depletion expenses and prepare a journal entry for the following.

A company purchases an oil field for $2.5 mm and estimated 8,00,000 gallons of oil reserves. Cost allocated per gallon is$ 2.75. In the first year, they extracted 1,80,000 gallons of oil and sells it to buyers.

Case -1

Depletion expenses = number of units consumed * depletion value per unit

= 180000 * 2.75

= $495000 (0.495 mm) Journal entry ParticularsDebit ($)Credit ($) Depletion expenses495000 Accumulated expenses 495000 Case – 2 In the above example with an inventory of 30,000 of yearend inventory. Inventory cost = 30000 * 2.75 => 82500 Journal entry ParticularsDebit ($)Credit (\$)
Depletion expenses412500
Inventory82500
Accumulated expenses
495000