The Depletion Rate is Calculated as

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Depletion Rate Calculator

Calculate the depletion expense per unit using the Units of Production method.

Total cost to purchase the mining rights or property.
Costs incurred to prepare the site for extraction.
Estimated value of the land after resources are depleted.
Total amount of resource (tons, barrels, ounces) available.
The amount of resource extracted during this accounting period.

Calculation Results

Total Depletion Base:
Depletion Rate per Unit:
Depletion Expense (This Period):
Remaining Book Value:

How the Depletion Rate is Calculated

In accounting and natural resource management, the depletion rate is calculated as the cost of extracting natural resources (such as timber, minerals, or oil) allocated over the period in which the resource is consumed. Unlike depreciation, which applies to tangible assets like machinery, depletion applies strictly to natural resources.

The Units of Production Method

The most common method for calculating depletion is the Units of Production method. This approach ensures that the expense recorded matches the actual usage of the resource. The depletion rate is calculated using the following logical steps:

  1. Determine the Depletion Base: This is the total cost associated with the resource minus any residual value. It includes acquisition costs, exploration costs, and development costs.
  2. Estimate Total Recoverable Units: Geologists or engineers estimate the total amount of the resource (e.g., tons of coal, barrels of oil) contained in the property.
  3. Calculate Rate per Unit: Divide the Depletion Base by the Total Estimated Recoverable Units.

Mathematical Formula

The specific formula used by this calculator is:

Depletion Rate = (Cost - Salvage Value) / Total Estimated Units

Once the rate per unit is established, the total expense for a specific period is found by multiplying the rate by the units extracted and sold during that timeframe.

Example Calculation

Imagine a mining company purchases rights to a silver mine for $5,000,000. They spend $1,000,000 on development. The estimated salvage value of the land is $500,000. Geologists estimate there are 200,000 ounces of silver recoverable.

  • Depletion Base: ($5,000,000 + $1,000,000) – $500,000 = $5,500,000
  • Depletion Rate: $5,500,000 / 200,000 ounces = $27.50 per ounce

If the company mines 10,000 ounces in the first year, the depletion expense would be 10,000 * $27.50 = $275,000.

function calculateDepletion() { // Get input values var acquisitionCost = parseFloat(document.getElementById("acquisitionCost").value); var explorationCost = parseFloat(document.getElementById("explorationCost").value); var salvageValue = parseFloat(document.getElementById("salvageValue").value); var totalReserves = parseFloat(document.getElementById("totalReserves").value); var unitsExtracted = parseFloat(document.getElementById("unitsExtracted").value); // Validation: Check for valid numbers if (isNaN(acquisitionCost) || isNaN(explorationCost) || isNaN(salvageValue) || isNaN(totalReserves) || isNaN(unitsExtracted)) { alert("Please enter valid numeric values for all fields."); return; } if (totalReserves <= 0) { alert("Total Estimated Reserves must be greater than zero."); return; } // Logic Step 1: Calculate Depletion Base // Base = (Acquisition + Exploration) – Salvage var totalCost = acquisitionCost + explorationCost; var depletionBase = totalCost – salvageValue; // Logic Step 2: Calculate Depletion Rate per Unit // Rate = Base / Total Reserves var ratePerUnit = depletionBase / totalReserves; // Logic Step 3: Calculate Expense for the current period // Expense = Rate * Extracted Units var periodExpense = ratePerUnit * unitsExtracted; // Logic Step 4: Approximate Remaining Book Value (Simplified for single period view) // This calculates Remaining Cap = Total Cost – Expense (assuming this is the first period or strictly hypothetical remaining) // For a true ledger, we would need accumulated depletion. Here we simply show cost less this expense. var remainingValue = totalCost – periodExpense; // Display Results document.getElementById("resBase").innerHTML = "$" + depletionBase.toLocaleString(undefined, {minimumFractionDigits: 2, maximumFractionDigits: 2}); document.getElementById("resRate").innerHTML = "$" + ratePerUnit.toLocaleString(undefined, {minimumFractionDigits: 2, maximumFractionDigits: 4}) + " / unit"; document.getElementById("resExpense").innerHTML = "$" + periodExpense.toLocaleString(undefined, {minimumFractionDigits: 2, maximumFractionDigits: 2}); document.getElementById("resRemaining").innerHTML = "$" + remainingValue.toLocaleString(undefined, {minimumFractionDigits: 2, maximumFractionDigits: 2}); // Show result container document.getElementById("depletionResults").style.display = "block"; }

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