- An accrual accounting method that companies use to allocate the cost of extracting natural resources such as timber, minerals and oil from the earth. Depletion is calculated for tax-deduction and bookkeeping purposes. Unlike depreciation and amortization, which mainly describe the deduction of expenses due to the aging of equipment and property, depletion is the actual physical depletion of natural resources by companies.
Entities that meet the IRS definition of having an economic interest in the property are eligible to claim deductions for depletion. For accounting and financial reporting purposes, depletion is meant to assist in accurately identifying the value of the assets on the balance sheet.
There are two types of depletion: percentage depletion and cost depletion. The IRS requires the cost method to be used with timber. It requires the method that yields the highest deduction to be used with mineral property, which it defines as oil and gas wells, mines, and other natural deposits (including geothermal deposits).
Cost depletion is calculated by taking the property’s basis, total recoverable units and number of units sold into account. Percentage depletion looks at the property’s gross income and taxable income limit.
Investment dictionary. Academic. 2012.
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depletion — de‧ple‧tion [dɪˈpliːʆn] noun [uncountable] when an amount of something is greatly reduced or nearly all used up: • Many businessmen judged the bank s measures insufficient to prevent the continuing depletion of foreign exchange reserves. • the… … Financial and business terms
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depletion — de·ple·tion /di plē shən/ n: the reduction of the value of the assets of a company engaged in removing natural resources (as by mining) because of the decrease over time of the natural resources (as coal) available in or on the land being worked… … Law dictionary
Depletion — De*ple tion, n. [Cf. F. d[ e]pl[ e]tion.] 1. The act of depleting or emptying. [1913 Webster] 2. (Med.) the act or process of diminishing the quantity of fluid in the vessels by bloodletting or otherwise; also excessive evacuation, as in severe… … The Collaborative International Dictionary of English
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depletion — [dē plē′shən, diplē′shən] n. 1. a depleting or being depleted 2. the gradual using up or destruction of capital assets, esp. of natural resources * * * de·ple·tion (dĭ plēʹshən) n. 1. The act or process of depleting. 2. The state of being… … Universalium
depletion — 1650s, from L.L. depletionem (nom. depletio) blood letting, from pp. stem of L. deplere to empty, lit. to un fill, from de off, away (see DE (Cf. de )) + plere to fill (see PLENARY (Cf. plenary)) … Etymology dictionary
depletion — [dē plē′shən, diplē′shən] n. 1. a depleting or being depleted 2. the gradual using up or destruction of capital assets, esp. of natural resources … English World dictionary