CA Foundation · Accounting · Depreciation and Amortisation
Himalaya Minerals acquires a quarry for ₹30,00,000. It estimates the total recoverable stone at 6,00,000 tonnes. During the first year, 45,000 tonnes are extracted. How much depletion is charged for the year?
The depletion charge is ₹2,25,000. The cost of ₹30,00,000 spread over 6,00,000 tonnes gives ₹5 per tonne, and 45,000 tonnes were extracted. Depletion therefore follows actual output, not a fixed percentage of cost, which would wrongly give ₹3,00,000.
- A₹2,25,000Correct
- B₹22,500
- C₹3,00,000
- D₹2,70,000
Explanation
Depletion rate per tonne = 30,00,000 ÷ 6,00,000 = ₹5. Depletion for the year = 45,000 × 5 = ₹2,25,000. The figure ₹3,00,000 is wrong because it applies a flat 10% of cost and ignores the quantity actually extracted.
Did you get it right without looking?
One question tells you little. A timed set on Depreciation and Amortisation shows your real accuracy, how long you take and where you lose marks.
More Depreciation and Amortisation questions
- Sharma Traders bought furniture on 1 April 2022 for ₹2,00,000 and depreciates it at 10% per annum on the written-down value method. The book…
- Bharat Textiles buys a machine for ₹5,00,000. It expects the machine to last 9 years and to fetch a residual value of ₹50,000 at the end. Un…
- Under the straight-line method of depreciation, what is the key assumption about the asset's consumption of economic benefits?
- Kapoor Industries bought machinery on 1 April 2021 for ₹4,00,000 and charges depreciation at 10% per annum on original cost (straight-line),…