ASSIGNMENT

INTRODUCTION

Brighton Mines is a company that owns three mines in northern British Columbia. They are responsible for the extraction and refining of ore in order to produce precious metals. Many different long-lived assets are used throughout their operations.

PART A:

The company is looking to purchase a new truck for the transportation of the ore harvested from the mine to the refining facility. The equipment manager has found a truck for sale that will have a purchase price of $120,000. Brighton will have to pay $2,000 for the truck to be painted with the Brighton Mines logo, and will have to equip the truck with a different truck bed to handle the heavy ore, which will cost $20,000. The truck bed will have the same useful life as the truck once installed. Brighton will also have to pay $9,000 to purchase the first year of insurance on the truck and a provincial eco-tax of $5,000, the eco-tax cannot be recovered.

 

The truck was purchased on April 1st 2022 and all required costs, included above were paid.

 

Instructions:

  1. Record the purchase of the truck on April 1st
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PART B:

Equipment used in the refining of the ore was purchased on June 1st in 2020 for a total cost of $800,000. This equipment was estimated to have a useful life of either 15 years or 10 million tonnes of ore processed, with a residual value of $50,000. The equipment processed 600,000 tonnes of ore in 2020, 1,100,000 in 2021, and 900,000 in 2022. Brighton has a December 31st year end and pro-rates all of their depreciation to the nearest month.

Instructions:

  1. Calculate the first three years of depreciation using the:
    1. Straight-Line Method
    2. Diminishing-Balance Method (with the double-declining rate)
    3. Units of Production Method
  2. Record how the entry for depreciation would look for any one of the above amounts
  3. Which method would result in the lowest profit in the first year? Which would result in the highest?

 

Straight-line

Year Depreciable Amount Rate Depreciation Expense Accumulated Depreciation Carrying Amount Show calculations here
          800,000.00 ↓
2020            
2021            
2022            

Double-Diminishing

Year Depreciable Amount Rate Depreciation Expense Accumulated Depreciation Carrying Amount
          800,000.00
2020          
2021          
2022          

 

Units of production

Cost per unit:

Year Depreciable Amount Units Depreciation Expense Accumulated Depreciation Carrying Amount
          800,000.00
2020          
2021          
2022          

 

Date Particulars Debit Credit
       
       
       
       

 

Which method would result in the lowest profit in the first year? Which would result in the highest?
 

PART C:

A partial balance sheet for Brighton Mines can be found below:

Brighton Mines

Balance sheet (partial)

December 31, 2020

Ore Processing Plant 5,000,000

Accumulated Depreciation – Ore processing Plant 1,500,00 3,500,000

The company found out on December 31st that the ore processing plant listed above is sitting near a mine that had less ore than was expected, therefore its value has decreased. An independent valuator was called in and determined the recoverable amount would be $2,500,000.

The plant was purchased in January of 2018 and has been depreciated using the straight-line method. It has a total useful life of 10 years at which time it would have no residual value.

Instructions:

  1. Record impairment, if necessary, on December 31st, 2020
  2. Calculate and record the revised depreciation for December 31st, 2021
  3. On March 1st, 2022 the company considered getting rid of this plant. Record the disposal of this plant on March 1st under each of the following scenarios (imagine each of the following is occurring independently of the other scenarios)
  1. The plant was scrapped
  2. The plant was sold for $1,300,000 cash
  3. The plant was sold for $4,000,000 cash
  4. An outside company offered to trade the plant for another plant further north. They are offering to give you $2,000,000 towards the purchase of the northern new plant in exchange for the old plus $6,000,000 cash. An independent valuator tells you that your current plant has a current fair-value of $1,700,000.
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PART D:

On April 1st, 2020, Brighton Mines purchased a patent for a new technology to be used in the refinement of their mined ore. They paid $300,000 for the patent.

Instructions:

  1. Record the purchase of the patent
  2. The patent has an estimated useful life of 10 years, at which time it will have no residual value. Record the amortization on the patent on December 31, 2020
  3. On January 1st, 2021 a team set up to evaluate our assets determined that the patent will only provide us with $250,000 of fair value in the future. Record any necessary impairment of the patent.
  4. Record the amortization on the patent on December 31, 2021
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DATE PARTICULARS PR DEBIT CREDIT   Show calculations here
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PART E:

The following is information about Brighton Mines for the past three years.

  2020 2021 2022
Sales 1,200,000 1,500,000 2,000,000
Net Profit 400,000 450,000 700,000
Total Assets 5,000,000 6,500,000 7,250,000

Instructions:

  1. Calculate the asset turnover for 2021 and 2022
  2. Calculate the return on assets for 2021 and 2022
  3. Briefly comment on each of the numbers calculated: What does each number mean? What is the current trend in both these numbers?
  2021 2022
Asset Turnover    
   
   
   
   

 

  2021 2022
Return on Assets    
   
   
   
   

 

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