Question 2 Extractive Industries

ABC Mining Ltd paid $6 million for a mining property on 1 July 2019 alter the geologists of the exploration company estimate that a gold deposit found on the property would produce 40 000 ounces of gold. In each of the years 2019-2020 and 2020-2021, ABC spent $250 000 per annum developing the property and, during 2020-2021, the company purchased and installed the following assets:

Asset Cost Estimated useful life

Mine building $550 000 25 years

Processing equipment $250 000 10 years

Mining equipment $200 000 5 years

The buildings and mining equipment cannot be economically removed from the mine site, but the processing equipment can be removed. On 30 June 2021, engineers estimate that development and construction activities have resulted in $800 000 worth of restoration costs that ABC is obligated to spend at the end of the mine's life under commonwealth legislation. The company nominates a discount rate of 7% as relevant for its gold operations.

Production started on 1 July 2021 and company geologists estimate that it will take eight years to exhaust the economically recoverable reserves. From 2021-22:

Ounces of gold mined 5 800

Ounces of gold sold 5 000

REQUIRED:

(1) What are the amortization rate and the amortisation expense for the year ended 30 June 2022.

(2) What is the depreciation expense related to mine building?

(3) What is the depreciation expense related to mining equipment?

(4) What is the depreciation expense related to processing equipment?

(5) What is the finance cost related to the restoration costs?

No journal entry is required. No Narration is required. Show your calculations. Round to the nearest $ amount.