Depletion

Depletion is a similar to depreciation, but is applied to assets that are used up in a measurable way. The most important examples of these are oil reserves and mines.

The value of an oil reserve is reduced, not by the passage of time, but by the extraction of oil. Therefore the cost charged in the accounts each year is proportionate to the amount of oil extracted during that year. Depletion would be calculated in a similar way for other assets, the calculation basically being:

D = (U ÷O) ×(C - R)

where U is the amount used in the accounting period
O is the amount that was available when the asset was bought
C is the cost of the asset and
R is the residual value that the asset is expected to have after it is fully depleted.

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