Depletion Rate Calculator
Calculate Cost Depletion per Unit and Period Expense
Total barrels, tons, or units available.
Please enter valid positive numbers. Total Units must be greater than zero.
Calculation Results
Depletion Base (Cost – Salvage):
$0.00
Depletion Rate (Per Unit):
$0.00
Depletion Expense (This Period):
$0.00
Understanding How the Depletion Rate is Calculated
In accounting and resource management, depletion is the systematic allocation of the cost of a natural resource (such as minerals, oil, gas, or timber) over the period of its extraction. Unlike depreciation, which applies to tangible assets like machinery, depletion applies specifically to natural resources that are physically consumed.
The Depletion Rate helps businesses determine exactly how much cost should be expensed on the income statement based on the physical volume extracted during a specific accounting period.
The Cost Depletion Formula
The depletion rate is calculated using the "Units of Production" method. The formula is straightforward and involves two main steps:
-
Calculate the Depletion Rate per Unit:
Depletion Rate = (Cost of Asset – Salvage Value) / Total Estimated Units -
Calculate the Depletion Expense:
Depletion Expense = Depletion Rate × Units Extracted in Period
Definitions of Key Terms
- Asset Cost: The total cost incurred to acquire the rights to the natural resource, including purchase price, exploration costs, and development costs.
- Salvage Value: The estimated value of the land or asset after all resources have been extracted. This amount is not subject to depletion.
- Total Estimated Units: The total volume of recoverable resources (e.g., total tons of coal, barrels of oil, board feet of timber) estimated at the beginning of the period.
- Units Extracted: The actual amount of the resource removed during the current accounting period.
Example Calculation
Imagine a mining company purchases a mine for $1,000,000. They estimate the land will be worth $100,000 after mining is complete (Salvage Value). Geologists estimate the mine contains 200,000 tons of ore.
First, calculate the depletion base: $1,000,000 – $100,000 = $900,000.
Next, calculate the rate per unit: $900,000 / 200,000 tons = $4.50 per ton.
If the company mines 10,000 tons this year, the Depletion Expense is: 10,000 × $4.50 = $45,000.