Accumulated Depletion

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  • 0:04 Accumulated Depletion Defined
  • 1:37 Accumulated Depletion…
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Instructor: Brianna Whiting

Brianna has a masters of education in educational leadership, a DBA business management, and a BS in animal science.

In this lesson, we will learn about accumulated depletion. We will define the term and learn how to calculate it. The lesson will then be concluded with a summary and a quiz.

Accumulated Depletion Defined

Each day, many of us get in our cars and drive to work. On the way, we often stop off to fill our tanks up with gasoline. Because this task has become part of our normal lives, we rarely stop to think about the companies that drill for the oil that makes the gasoline we used. You see, like all businesses, oil companies have to manage their finances. While they may be known to generate a great deal of wealth, they have to face an issue that many other businesses don't. Oil is considered a natural resource, and in order to figure out the value of that oil, companies figure something called accumulated depletion.

In order to fully understand this term, it's important to first define a natural resource. A natural resource is something that is supplied by nature, such as oil, minerals, and gas deposits. Much like other supplies that consumers use, natural resources can be used. However, their use comes in the form of removing or extracting them from nature.

Now, depletion is the term used to assign a cost to removing those natural resources. It's the act of actually extracting or depleting those natural resources by a company, like the oil company from our earlier scenario. Thus, accumulated depletion is the decrease in the value of the asset, or natural resource, over a period of time.

For example, in a diamond mine, there are only a limited number of diamonds. As those diamonds are collected, there is a total reduction to the actual value of the mine. This reduction in total value is accumulated depletion.

Accumulated Depletion Calculated

While we know what accumulated depletion is, we still need to learn how to calculate it. The following equation is used to calculate accumulated depletion:

Depletion cost of a period = Depletion cost per unit * Number of units extracted during period

So, if there are 30 diamonds extracted during the month of July, and the cost per unit is $100, the depletion cost for the period of July is $3000.

$3000 = $100 * 30

It's important to note that for any period, like the month of July, the depletion is an estimate of the cost of the natural resources that were extracted. Depletion is then recorded the following way:

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