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- Mar 11, 2019
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We picked up a new client who owns a paving company that also mines it's own gravel. Business and Gravel mine are located on parents property, so the mine was not purchased or rent is not being paid to parents.
What are the proper ways to account for the gravel mine on the Balance Sheet? The questions I have are as follows:
- For the depletion entry I record the fair value of the land on the books: Asset (Gravel Mine), then credit owners equity? The depletion rate is calculated by determining the gravel reserves divided by the amount booked in the asset account. For example if land is worth $500k and they have reserves of 250k Tons The depletion factor would be $2 per ton. The depletion entry each year would be tons of gravel used times the $2 and booked to Depletion Expense and Accumulated Depletion. Is this correct?
- When the gravel is mined does this get booked as inventory? If so what how to value? The reason I'm unsure about this is because nothing is being paid for the gravel I see it as potential overstating COGS
Thanks!
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What are the proper ways to account for the gravel mine on the Balance Sheet? The questions I have are as follows:
- For the depletion entry I record the fair value of the land on the books: Asset (Gravel Mine), then credit owners equity? The depletion rate is calculated by determining the gravel reserves divided by the amount booked in the asset account. For example if land is worth $500k and they have reserves of 250k Tons The depletion factor would be $2 per ton. The depletion entry each year would be tons of gravel used times the $2 and booked to Depletion Expense and Accumulated Depletion. Is this correct?
- When the gravel is mined does this get booked as inventory? If so what how to value? The reason I'm unsure about this is because nothing is being paid for the gravel I see it as potential overstating COGS
Thanks!
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