Pacific Petroleum holds huge reserves of oil assets. Assume that at the end of 2018, Pacific Petroleum's cost of oil reserves totaled $ 50,000,000, representing 5,000,000 barrels of oil.
Requirement:
1. Which method does Pacific Petroleum use to compute depletion?

Question

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Respuesta :

andromache andromache · Answer 1 · 2020-01-29T13:01:35+01:00

Answer:

Units of production method

Explanation:

The formula to compute the depreciation expenses under the units-of-production method:

Depreciation per miles or hours = (Original cost - residual value) ÷ (estimated production)

For first-year or for another year, the depreciation expense would be

= Production units in a year × depreciation per miles or per hour

So, for computing the depletion, the unit of production method is used