Accounting for Depletion Expense & Natural Resources. скачать в хорошем качестве

Accounting for Depletion Expense & Natural Resources.

In this video, we explain accounting for natural resources & depletion expense. Start your free trial: https://farhatlectures.com/courses/fi... Accounting for Natural Resources & Depletion Expense Depletion is the process of allocating the cost of natural resources (such as oil, gas, minerals, and timber) over their useful life. Natural resources are considered wasting assets because their value decreases as they are extracted or harvested. Depletion expense reflects the cost associated with using up these resources. Key Concepts Natural Resources: Long-term assets extracted from the earth. Depletion Expense: The allocation of the cost of a natural resource to expense as it is extracted. Depletion Base: The total cost subject to depletion, including acquisition, exploration, development, and restoration costs. Unit of Production Method: A method of calculating depletion expense based on the amount of the resource extracted during a period. Steps in Accounting for Depletion Determine the Depletion Base: This base includes the cost of acquiring the resource, exploration costs, development costs, and restoration costs. Estimate Recoverable Units: Estimate the total quantity of the resource that is expected to be extracted (e.g., barrels of oil, tons of coal). Calculate Depletion per Unit ​ Depletion vs. Depreciation Though similar, depletion applies to natural resources while depreciation applies to tangible fixed assets. Depletion is based on the quantity extracted, while depreciation is usually based on time. Depletion also includes restoration costs, which are added to the depletion base to cover land restoration after resource extraction. Disposal of Natural Resources When natural resources are fully depleted or disposed of, the carrying value of the resource is removed from the balance sheet. Any gain or loss on disposal is recognized in the income statement. Example: If the company sells its depleted mine for $100,000, the journal entry would include removing the accumulated depletion and recognizing the cash received: Debit: Accumulated Depletion (entire balance) Credit: Natural Resource Asset Debit: Cash Credit: Gain or Loss on Disposal Tax Treatment of Depletion For tax purposes, there are two methods to calculate depletion: Cost Depletion: Allocates the depletion base over the estimated recoverable units, similar to the method described above. Percentage Depletion: A fixed percentage of revenue is deducted, often resulting in a larger deduction, but it is subject to various limits depending on the resource and its annual production. Conclusion Accounting for depletion ensures that the cost of natural resources is systematically allocated as they are consumed. The depletion base, prorated over the resource's estimated extraction life, allows companies to accurately reflect the reduction in value of their natural resource assets. This method is crucial for companies engaged in extracting natural resources and helps maintain accurate financial reporting and tax compliance. #accountingcourses #accountinglectures #accountingtips