Computing the Acquisition and Depletion of a Natural Resource

 

Freeport-McMoRan Copper & Gold Inc., headquartered in Phoenix, Arizona, is a leading international mining company of copper, gold, and molybdenum. Its revenues were over $16 billion with net income of nearly $2 billion in a recent year. Assume that in February 2020, Freeport-McMoRan paid $800,000 for a mineral deposit in Indonesia. During March, it spent $70,000 in preparing the deposit for exploitation. It was estimated that 1,000,000 total cubic yards could be extracted economically. During 2020, 60,000 cubic yards were extracted. During January 2021, the company spent another $6,000 for additional developmental work that increased the estimated productive capacity of the mineral deposit.
Required:
1. Compute the acquisition cost of the deposit in 2020.
2. Compute depletion for 2020.
3. Compute the net book value of the deposit after payment of the January 2021 developmental costs.

 

 

Sample Solution

1. The acquisition cost of the mineral deposit in 2020 is calculated by adding up all expenditures related to acquiring it. In this case, that would include both the original purchase price of $800,000 and any preparatory expenses incurred before production began i.e. the $70,000 spent in March on developing the site (Freeport-McMoran Copper & Gold Inc., 2020). As such total acquisition costs for the deposit would be $870,000 ($800,000 + $70,000) (Freeport-McMoran Copper & Gold Inc., 2020).

2. Depletion for 2020 can be determined using either units-of-production method or percentage depletion depending on which one Freeport‐McMoRan chooses to use based upon their mining operations (Kimmel et al., 2017). Assuming they went with unitsof‐production then they could calculate this amount by dividing estimated productive capacity by actual output then multiplying that figure by cost per unit i.e 1 000 000/60 000 x$ 8 70 ,00 0= 290 00 0 (Ki m mel e t al .2 01 7 ) .Th us annual d eleg tion fo r 2 02 0 w oul d b e 290000.

3. Net book value of the deposit after payment of January 2021 developmental costs can be calculated by subtracting total development expenses from remaining book value at beginning of year i .e . 59 0000 – 6 0000 = 53 0000 ( Kimmel et al., 2017 ). Therefore, net book value after payment of January 2021 developmental costs is 530000.

In conclusion, understanding how to calculate acquisition and depletion as well as tracking changes in net book values are essential for Freeport‐McMoRan when determining profitability associated with their mineral deposits. By doing so they are able to ensure that resources are used effectively while maximizing returns on investments.

Restitution period is the another venture evaluation strategy which help to decide the genuine time expected to recuperate the speculation made in the undertaking. It is exceptionally gainful to the financial backers as they really need fast recuperation of their venture (Gotze, Northcott, and Schuster, 2016). Hence, it is for making a legitimate speculation examination through this strategy. Directors at Access Intelligence should find out the incomes that is normal from the item that the organization is creating and the venture required. The items which will give faster recuperation of the speculation sum should be contributed. The primary downside of this procedure doesn’t considers the part of time worth of cash.

 

Bookkeeping Rate of Return is one more venture examination method through which the supervisors at Access knowledge This specific strategy of speculation evaluation basically assists with assessing the profits that is normal from the undertaking by thinking about of the speculation expected in a task and incomes that is normal from an undertaking (Dyson, and Berry, 2014).

 

So basically, supervisors can involve differed methods of speculation examination for item that the Access knowledge are creating which assists with breaking down the venture’s capacity of getting monetary advantage from shifted viewpoints. So basically unique venture examination procedure assists in assessing the net money with streaming, some to decide the recuperation season of the underlying speculation and some strategy help to decree the return that is created from the item advancement. Hence supervisors should involve different speculation as talked about in above area before advancement of the items.

 

Viability of corporate Governance at Access Intelligence:

It is obvious from a top to bottom examination of the corporate administration of Access Intelligence that the organization isn’t following a most significant level of corporate administration. The corporate principles doesn’t follow the most noteworthy and the most persevering degree of corporate administration. The administration has advanced a reasoning for this, as Access Intelligence being an AIM organization, the association isn’t expected to follow the UK corporate Governance Code as ordered by the Financial Conduct Authority. The administration plainly expressed that that the gathering is simply dedicated to keep the corporate administration guideline according to it equivalent with its size. The utilization of the most extensive level of corporate administration ought to be high assuming that the organization will build the size of the organization. Since the organization’s administration is hesitant to put a compelling corporate administration component, it tends to be obviously expressed that administration isn’t willing to expand the size which is for sure a question of worry of the financial backers. So it tends to be properly expressed that corporate administration standards are not kept actually in the organization and in this manner most elevated guideline of corporate administration are not continued in the organization’s corporate framework (Wintoki, M.B., Linck, J.S. also, Netter, 2012).

 

It could likewise be examined that however there is appropriate board for taking pivotal choices and obligations and a few exceptional councils, for example, review panel, compensation council and designation council that has been comprised by the board for interior controls. According to the subtleties of the review board , it is obvious that review council just met double cross in the monetary year 2017 and just look at just monetary undertakings that too partially. The degree of obligations are simply restricted to interior controls, bookkeeping arrangements, consistence to the bookkeeping principles and arrangement of outer inspectors. In this manner is no legitimate system through which monetary misrepresentation could be forestalled and subsequently it tends to be expressed that the inward controls is likewise ineffectual to a huge degree. Corporate misrepresentation is mater of concern and the methods to manage corporate extortion isn’t as expected referenced in subtleties inside the corporate component of the organization. One of the main angle that should be called attention to that the there is no particular subtleties of autonomous chiefs that is available in the leading body of the Access Intelligence. This involves high worry as there might be serious level of abuse of abilities by the overseers of the organization.

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