Depletion Method of Depreciation | Example

The company expect 2,00,000 barrels of oil from that land. The following table shows the total extraction from the land during the particular year in the next 5 years.

1. 31/03/2019 - 35,000
2. 31/03/2020 - 30,000
3. 31/03/2021 - 35,000
4. 31/03/2022 - 47,000
5. 31/03/2023 - 53,000

Calculate the amount of depreciation.

Solution : -

Calculation of the amount of depreciation under Depletion Method of Depreciation:-

Formula:-

So now, we will calculate the amount of depreciation with the above-shown formula: 

Total Cost of an asset                                  =  Land Price + Development
                                                                               Charges + Drilling Fee +
                                                                               Restoration Cost

  =  50,00,000 + 10,00,000+ 4,00,000
      +1,00,000

  =  65,00,000/-

Resale(Scrap) value of an asset              =  5,00,000/-

Total output from an asset(in barrels)=  2,00,000 barrels

So, 

Depletion(Depreciation) - per barrels      =  65,00,000-5,00,000 / 2,00,000

        =  Rs. 30 per barrels

So now, the following table shows the calculation of an amount of depreciation year by year:-

Journal entries or ledger are the same with the following methods:

• Straight Line Method
• Written down value method
• Click here to check out all method of depreciation.

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