Question

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?

Answer 1

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