Question

Which of the following method is applicable in case of wasting assets, i.e., mines, quarries, oil well etc.?

• A. Inventory system of depreciation.
• B. Machine hour rate.
• C. Sum of years digit.
• D. Depletion Method.

Answer 1

Answer: (D)

Depletion Method.

Option D is correct. Under this method, depreciation is charged on the basis of output extracted in comparison with the estimated total contents of mines. Steps are : -
1) Total contents of the assets are first estimated in terms of tons, gallons etc.

2) Thereafter the total cost of the asset is divided by the total units of contents in order to find out the rate of depreciation.

3)After that, amount of depreciation is calculated on the basis of quantity extracted for a particular year by multiplying with the rate of depreciation so ascertained.