Under this method, a per‐unit cost of depletion is found by dividing the depletable cost by the estimated number of units the resource contains. Depletion expense is generally calculated using the units‐of‐activity method. Depletable cost equals the total cost of natural resources less any salvage value remaining after the company finishes extracting them. Depletion is the process of allocating the depletable cost of natural resources to expense as individual units of the resource are extracted. The approach that a company selects should be disclosed in the notes that accompany the financial statements.ĭepletion. Under the full‐cost approach, all exploration costs are included in the cost of natural resources. Unsuccessful exploration costs are treated as expenses in the period during which they occur. Under the successful‐efforts approach, exploration costs are considered part of the cost of natural resources only when a productive natural resource is found. If the property must be restored after the natural resources are removed, the restoration costs are also considered to be part of the cost.Ĭompanies that search for new natural resources determine cost using one of two approaches: the successful‐efforts approach or the full‐cost approach. The cost of natural resources includes all costs necessary to acquire the resource and prepare it for extraction. Timber, fossil, mineral deposits, and other natural resources are different from depreciable assets because they are physically extracted during company operations and they are replaceable only through natural processes.Ĭost of natural resources. Inventory Errors and Financial Statements.Inventory Systems: Perpetual or Periodic.Recording Notes Receivable Transactions.
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