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In: Accounting

The method of depletion used to allocate the cost of natural resources to future periods is...

The method of depletion used to allocate the cost of natural resources to future periods is most similar to the straight line depreciation method

True or false

Solutions

Expert Solution

Ans: False

Explanation: Depreciation per year remains same in all years under Straight Line Depreciation Method. But under depletion method depreciation for the year depends upon the natural resource extracted i.e. it changes every year.The following is an example.

Calculation of Depletion expense for 2018:-
Depletion Expense per barrel = Cost of oil reserves
Total capacity in barrels of oil
Depletion Expense per barrel = $252,000,000
140000000
Depletion Expense per barrel = $                                   1.80
No of Barrels removed during 2018 =                             30,000,000
Depletion Expense = $1.80 * 30,000,000
= $                         54,000,000
. Straight Line Depreciation Method :-
Depreciation Expense = Depreciable Amount
Useful Life
Depreciable Amount = Cost - Salvage value
Cost of oil reserves = $252,000,000
Salvage value (residual value) = $0
Remaining Useful life = 5 years
Depreciable Amount = $252,000,000 - $0
= $252,000,000
Depreciation Expense = $252,000,000
30 years
= $50,400,000.00 per year

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ekkarill92 answered 1 year ago
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