What is a Depletion?

Depletion is the reduction of total resource value as that resource is extracted from land. 

How it Works

A company may buy land containing resources such as minerals, timber, or oil.

The cost of this land is made up of a few components. 

One part is the purchase price. 

Another could be exploration costs. 

The project will involve development costs.

Finally, there will usually be restoration costs involved, as well.

The costs added to the purchase price are known as capitalized costs.

The total of these costs are recorded on the balance sheet as the asset’s cost..

Once underway, the project will extract resources, thereby reducing the asset’s value. 

This process is referred to as depletion.

© R.J. Hickman 2020