[Anonymous]

My CPA review course talks about depletion in a small paragraph, can someone help me understand depletion and what I need to know for the CPA exam. An example would also be helpful. Thank you.

[Anonymous]

Depletion is used for natural resource mining accounting, like oil/metals/natural gas. Situations I've seen in Becker call for depletion expense in a particular period, or depletion base (similar to basis in depreciation).

I'll give you simple example, a client wants to purchase an area of land for $1M, there is to be believed there are 100M tons of iron within the area of land, and the estimated cost to clean-up is $500K. If the company mines 10M tons of iron per year, what is the depletion expense in Year 1?

($1M initial cost + $500K clean up) Depletion Base * (10M tons gathered / 100M tons available) Depletion Percentage

($1.5 depletion base) * (10% depletion incurred)

$150K Depletion expense

Easy-squeezy.

[Author]

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