Depletion Expense Calculator

How to Use This Calculator

1. Enter the Total Estimated Reserves - this is the total amount of natural resource (in units) that is estimated to be available in the deposit.
2. Enter the Cost of Reserve - this is the total cost of acquiring or developing the natural resource deposit.
3. Enter the Units Extracted This Year - this is the amount of resource that was extracted or sold during the current accounting period.
4. Click the Calculate button to compute the depletion rate and annual depletion expense.
5. The calculator will display the cost per unit of resource (depletion rate) and the total annual expense for the extracted amount.

Understanding Depletion Expense

Depletion is an accounting method used to allocate the cost of extracting natural resources from the earth. Unlike depreciation for tangible assets, depletion applies to intangible natural resources like oil, gas, minerals, and timber.

The units-of-production method calculates depletion based on the actual amount of resource extracted. This makes it a more accurate reflection of the company's costs related to resource extraction.

Example

Suppose a company has a mineral deposit with estimated reserves of 1,000,000 tons at a cost of $5,000,000. In the first year, they extracted 50,000 tons.

Depletion Rate = $5,000,000 / 1,000,000 tons = $5.00 per ton

Annual Depletion Expense = $5.00/ton × 50,000 tons = $250,000

This $250,000 would be recorded as an expense on the company's income statement for the year, reducing their taxable income.