![]() Once the cost of natural resource is established, depreciable value or “depletable” value is determined by deducting any residual value from depletion base.ĭepletion rate is much like unit of production method of depreciation. This cost is also added as cost of natural resource or in other words depletion base. Restoration and rehabilitation costs: once the extraction work is concluded, entities are often duty bound to restore the location back to its natural state instead of leaving the spill and destruction behind.Extraction and development cost: this includes all such efforts, assets both tangible or intangible that were necessary to extract the resource and includes machinery, temporary sight constructions, licences, legal fee etc. ![]() Its up to the entity if it want to add only such costs that were incurred on successfully “hitting” the resource in which case failed attempts will be treated as loss or use “total approach” in which case all the costs incurred are treated as cost of the asset. These costs are incurred well before actual extraction starts. Exploration and drilling costs: this includes the cost on efforts applied to locate the position of natural resource and analysing potential point of extraction.Purchase cost of the asset: this is the price paid to acquire the land or property where extraction will be done.In case of natural resource cost includes: General principle is that all such costs that are specifically incurred to bring the assets into its intended use are included as cost of the asset. Quantity of resource extracted in the periodĬost of natural resource is determined like other fixed assets of the entity.Expected total reserve available for extraction that expressed in particular unit of measurement e.g.Determination of depletion rate for which we need following two items:.Cost of natural resource also called depletion base.In order to determine periodic charge we need following pieces of information: ![]() ![]() Depletion is allocation of cost of natural resource to the period based on the rate of consumption of natural resource. ![]()
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