depletion

Examples of depletion in the following topics:

• Depletion Base

  • This example calculates depletion expense using cost depletion: Big Texas Oil, Co. discovers a large reserve of oil.
  • Therefore, the depletion deduction is $5,000 ($100,000 X 10,000/200,000).
  • Depletion is a method of recording the use of natural resources over time.
  • The depletion base is the total cost of the natural resource.
  • Cost depletion is computed by (1) estimating the total quantity of mineral or other resources acquired and (2) assigning a proportionate amount of the total resource cost to the quantity extracted in the period.Cost Depletion FormulaAccording to the IRS Newswire, over 50 percent of oil and gas extraction businesses use cost depletion to figure their depletion expense.

• Special Considerations for Acquisition and Depletion of Natural Resources

  • To record depletion, debit a depletion account and credit an accumulated depletion account, which is a contra account to the natural resource asset account.
  • If all of the resource is sold, expense all of the depletion and removal costs.
  • To compute depletion charges, companies usually use the units-of-production method.
  • This calculation provides a per-unit depletion cost.
  • Define a natural resource and how to properly account for its depletion

• Recoverable Reserves

  • This cost is subject to depletion --the company has estimated the oil well will produce 200,000 barrels of oil.
  • Depletion expense allows a business to account for the reduction in value of natural reserves.
  • Two methods are available to calculate depletion: the cost and percentage method.
  • Cost depletion is the most commonly used by oil and gas companies.
  • The amount of recoverable reserves are used to compute an asset's depletion.

• Exhaustion

  • Exhaustion is the depletion and inability to maintain normal function, this often results in physical illness.
  • Although the body begins to try to adapt to the strains or demands of the environment, the body cannot keep this up indefinitely, so its resources are gradually depleted.
  • At this point, all of the body's resources are eventually depleted and the body is unable to maintain normal function.

• Ozone Depletion

  • Free radicals in the upper stratosphere act as catalysts for ozone decomposition, thereby depleting the ozone layer.
  • Both types of ozone depletion have increased as emissions of halo-carbons have increased.
  • CFCs and other contributing substances are referred to as ozone-depleting substances (ODS).
  • The Montreal Protocol bans the production of ozone-depleting chemicals such as carbon tetrachloride and trichloroethane.
  • The reaction of these free radicals with ozone disrupts the ozone-oxygen cycle, leading to the destruction of stratospheric ozone and the depletion of the ozone layer.

• Resource Cost Write-Off

  • Assets that are natural resources, which are used throughout the course of business, are subject to periodic depletion.
  • When the asset has been depleted to a value of zero or its value has dropped to less than its salvage value, the asset's remaining book value, as calculated by the original historical cost minus the depletion of prior years, is removed from the balance sheet through a write-off.
  • The journal entry will credit (decrease) the asset's account balance (equal to its historical cost) and debit (decrease) the balance in the accumulated depletion account.
  • The decrease in the asset and accumulated depletion accounts reduces the balance to zero and removes the account from the balance sheet.
  • A write-off journal entry removes an asset not in use and its related contra account (accumulated depletion) from the balance sheet.

• The Tragedy of the Commons

  • The population of tuna may be depleted if fishermen are allowed to catch as much as they want.
  • The tragedy of the commons is the depletion of a common good by individuals who are acting independently and rationally according to each one's self-interest.
  • However, when a lot of fishermen, all thinking this way, catch the fish, the total stock of fish may be depleted.
  • When the stock of fish is depleted, none of the fishermen are able to continue fishing, even though, in the long run, each fisherman would have preferred that the fish not be depleted.
  • The Food and Agriculture Association estimated 70% of the world's fish species are either fully exploited or depleted.

• EMF and Terminal Voltage

  • Their gradual dimming implies that battery output voltage decreases as the battery is depleted.
  • The reason for the decrease in output voltage for depleted or overloaded batteries is that all voltage sources have two fundamental parts—a source of electrical energy and an internal resistance.
  • The voltage across the terminals of a battery, for example, is less than the emf when the battery supplies current, and it declines further as the battery is depleted or loaded down.
  • However, if the device's output voltage can be measured without drawing current, then output voltage will equal emf (even for a very depleted battery).

• The Phosphorus Cycle

  • Excess phosphorus and nitrogen that enters these ecosystems from fertilizer runoff and from sewage causes excessive growth of microorganisms and depletes the dissolved oxygen, which leads to the death of many ecosystem fauna, such as shellfish and finfish.
  • A dead zone is an area within a freshwater or marine ecosystem where large areas are depleted of their normal flora and fauna.
  • Dead zones occur when phosphorus and nitrogen from fertilizers cause excessive growth of microorganisms, which depletes oxygen, killing flora and fauna.

• Why Governments Intervene In Markets

  • Certain depletable goods, like public parks, aren't owned by an individual.
  • As a result, it is very easy for these assets to be depleted.
  • Governments intervene to ensure those resources are not depleted.