By Klimenok V.I.
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If all of the resources extracted during a period are sold, then depletion expense equals depletion per unit times the number of units extracted and sold. , number of units times depletion per unit) should be carried on the balance sheet as inventory. To illustrate, assume that a mine site is purchased for $9,000,000, and another $3,000,000 is spent on developing the site for production. Assume the site is estimated to contain 5,000,000 tons of the targeted ore. At completion of the operation, the site will be water flooded and sold as a recreational lake site for an estimated $2,000,000.
The calculations will undoubtedly be seen as a bit peculiar; I have no idea who first originated this approach or why. , 10 + 9 + 8 + . . + 2 + 1 = 55). 1 Spreadsheet Software Again, software includes a built-in function for sum-of-the-years’-digits (SYD) method. Following is the function that returns the $18,000 annual depreciation value for Year 3. , if a ten-year asset is acquired on July 1, 20X1, depreciation for 20X1 is the depreciable base times 10/55 times 6/12 (relating to six months of use); depreciation for 20X2 is the depreciable base times 10/55 times 6/12 (reflecting the last six months of the first layer), plus the depreciable base times 9/55 times 6/12 (reflecting the first six months of the next layer)).
Accounting for Asset Exchanges You may have bought a new car and part of what you gave to obtain the new car was a “trade in” of a different car. This would be a classic “exchange” transaction. , an old copy machine for a new one). Sometimes land is exchanged. Exchanges are often motivated by tax rules because neither company may be required to recognize a taxable event on the exchange; quite different than the tax outcome of an outright sale. Whatever the motivation behind the transaction, the accountant is again pressed to measure and report the event.