Accounting for depletion of a natural resources general guidelines for determining the depletion base and depletion rate based on an oil drilling example, determine what is included in the depletion base and how to calculate the depletion expense each period, Depletion of Natural resources (called wasting assets) include petroleum, minerals, and timber, their main features : 1- Complete removal (comsumption) of the asset, 2-Replacement of asset only by an act of nature Questions to be answered: 1-How to establish the cost basis for write-off? 2-What pattern of allocation should be used? Establishing a Depletion Base (factors) 1-Acquisition cost of the resource, 2-Exploration costs, 3-Development costs, 4-Restoration costs, Acquisition costs:1-Right to search & find an undiscovered natural resource, 2-Price paid for an already discovered resource, 3-Lease payments for property containing the resource, 4-Royalty payments to owner of property Recorded in account "Undeveloped Property", Exporation costs: Costs needed to find the resource 1-When substatial can capitalize in depletion base, 2-Some companies expense these costs, Development costs (development costs): 1-Tangible equipment costs, do not normally include in the depletion base, depreciate over useful life as expense, 2-Intangible development costs, part of depletion base, Restoration costs: 1-Restore property to its natural state, part of the depletion base (fair value to restore), Write-Off of Resource Base (cost depletion) 1-Units-of-production method (activity approach), function of number of units extracted during the period (costper unit of production), detailed calculations by Allen Mursau

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