Depletion
from class:
Financial Accounting I
Definition
Depletion is the systematic allocation of the cost of natural resources over their useful life. It accounts for the reduction of available resources due to extraction or usage.
5 Must Know Facts For Your Next Test
- Depletion expense is calculated using units-of-production method.
- Natural resources subject to depletion include oil, minerals, and timber.
- The depletion base includes acquisition costs, exploration costs, and development costs.
- Depletion reduces the book value of the resource on the balance sheet.
- Companies must estimate recoverable units to calculate annual depletion.
Review Questions
- What method is primarily used to calculate depletion expense?
- Which types of assets are typically subject to depletion?
- What components make up the depletion base?
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