91Ó°ÊÓ

Depreciation is an accounting procedure that is used to know the exact value of the asset as the time passes and when the asset becomes obsolete. A company has different options for analyzing depreciation, with the straight-line method being the most common one.

Determining the cost of timber

$\begin{array}{rcl}\text{Cost} \text{of}\text{timber}& =& \left(\text{Timber}\text{cost}-\text{Estimated}\text{value}\text{of}\text{land}\right)×\text{Total}\text{timber}\text{area}\\ & =& \left(\$1,300-\$300\right)×7,000\\ & =& \$1,000×7,000\\ & =& \$7,000,000\\ & & \end{array}$

Determining depletion of timber

$\begin{array}{rcl}\text{Depletion}\text{timber}& =& \text{Timber}\text{area}×\text{Estimated}\text{acres}\text{of}\text{timber}\\ & =& 7,000×8,000\\ & =& \$56,000,000\end{array}$

Calculation depletion rate

Calculating the cost of road

$\begin{array}{rcl}\text{Cost} \text{of}\text{road}& =& \text{Road} \text{per}\text{mile}\text{cost}×\text{Total}\text{miles}\\ & =& 7,480×10\\ & =& 74,800\end{array}$

Calculating depletion of timber

$\begin{array}{rcl}\text{Depletion}\text{timber}& =& \text{Timber}\text{area}×\text{Estimated}\text{acres}\text{of}\text{timber}\\ & =& 7,000×8,000\\ & =& \$56,000,000\\ & & \end{array}$

Calculating depreciation for 2017

$\begin{array}{rcl}\text{Depreciation}& =& \text{Cost} \text{of}\text{road}×\frac{\text{Board}\text{fleet}}{\text{Depletion}\text{timber}}\\ & =& \$74,800×\frac{850,000}{56,000,000}\\ & =& \$1,190\end{array}$

Calculating the cost of reforestation

$\begin{array}{rcl}\text{Cost}\text{of}\text{reforetation}& =& \text{Number}\text{of}\text{plants}×\text{Cost}\text{per}\text{seed}×\text{Trees}\text{sold}\\ & =& 5×4×3,500\\ & =& \$70,000\end{array}$