If a mining company extracts 1,500,000 tons in a period but only sells 1,200,000 tons,
A) total depletion on the mine is based on the 1,200,000 tons.
B) depletion expense is recognized on the 1,500,000 tons extracted.
C) depletion expense is recognized on the 1,200,000 tons extracted and sold.
D) a separate accumulated depletion account is set up to record depletion on the 300,000 tons extracted but not sold.

Question

Quizplus · Accepted Answer

Depletion expense is recognized on the amount of mineral extracted and sold, which in this case is 1,200,000 tons. This is because depletion is the process of allocating the cost of natural resources over the period in which they are consumed or sold, and the amount sold represents the portion of the resource that has actually been consumed. Therefore, choice C is the best option. Choices A and B are incorrect because they do not account for the amount actually sold. Choice D is also incorrect because a separate accumulated depletion account is not needed for the portion of the resource that has not yet been sold.

If a Mining Company Extracts 1,500,000 Tons in a Period