Depletion
What is a Depletion?
Depletion is the reduction of total resource value as that resource is extracted from land.
![dpln1](https://seeaccountingnow.online/wp-content/uploads/2020/11/dpln1.jpg)
How it Works
A company may buy land containing resources such as minerals, timber, or oil.
![dpln2](https://seeaccountingnow.online/wp-content/uploads/2020/11/dpln2.jpg)
The cost of this land is made up of a few components.
![dpln3](https://seeaccountingnow.online/wp-content/uploads/2020/11/dpln3.jpg)
One part is the purchase price.
![dpln4](https://seeaccountingnow.online/wp-content/uploads/2020/11/dpln4.jpg)
Another could be exploration costs.
![dpln5](https://seeaccountingnow.online/wp-content/uploads/2020/11/dpln5.jpg)
The project will involve development costs.
![dpln6](https://seeaccountingnow.online/wp-content/uploads/2020/11/dpln6.jpg)
Finally, there will usually be restoration costs involved, as well.
![dpln7](https://seeaccountingnow.online/wp-content/uploads/2020/11/dpln7.jpg)
The costs added to the purchase price are known as capitalized costs.
![dpln8](https://seeaccountingnow.online/wp-content/uploads/2020/11/dpln8.jpg)
The total of these costs are recorded on the balance sheet as the asset’s cost..
![dpln9.1](https://seeaccountingnow.online/wp-content/uploads/2020/11/dpln9.1.jpg)
Once underway, the project will extract resources, thereby reducing the asset’s value.
![dpln10](https://seeaccountingnow.online/wp-content/uploads/2020/11/dpln10.jpg)
This process is referred to as depletion.
![dpln11](https://seeaccountingnow.online/wp-content/uploads/2020/11/dpln11.jpg)
© R.J. Hickman 2020