On July 23 of the current year, Serena Mining Co. pays $4,612,500 for land estimated to contain 5,125,000 tons of recoverable ore. It installs machinery costing $512,500 that has a 10-year life and no salvage value and is capable of mining the ore deposit in eight years. The machinery is paid for on July 25, seven days before mining operations begin. The company removes and sells 490,000 tons of ore during its first five months of operations ending on December 31. Depreciation of the machinery is in proportion to the mine's depletion as the machinery will be abandoned after the ore is mined.how to calculate the first five months depreciation on machinery??
While the machinery has a ten year life, it will only be used for eight years and then become abandoned. So we first do $512,500 - $0 and then divide by 8 years to get $64,062.50. That's how much depriciation the machinery accumulates per year. Since we're looking for the first five months of accumulated depreciation, we take $64,062.50 and multiply it by (5/12) months. That comes out to $26,692.71.
