Depletion Method of Depreciation:
What is depletion method of
depreciation? Explain with example.
Depletion method of
depreciation is especially
suited to mines, quarries, sand pits, etc. According to it the cost of the
asset is divided by the total workable deposits. In this way, rate of
depreciation per unit of output is ascertained. Depreciation in any
particular year is charged on the basis of the output during that year.
A mine was acquired at a cost
of $20,00,000 the quantity of minerals expected to be mined is 5,00,000
tons, the rate of depreciation per unit will be $4 i.e., (20,00,000 /
5,00,000). If during the year 25,000 tons minerals is extracted, the amount
of depreciation will be 25,000 × 4 = $1,00,000.