Answer:
Depletion for Year 1: $1,925,000;
Depletion for Year 2: $2,200,000.
Explanation:
Please find the below for detailed explanation and calculation:
- First, calculate the depletion rate per cubic feet of natural gas extracted from the gas deposit:
+Depletion rate = Total cost of acquisition and development of the gas deposit/ total expected gas extraction from the deposit = 8,250,000/3,000,000 = $2.75 per cubic feet.
- Then, find the depletion for the year 1 and yer 2 given the actual extracted gas are given:
Depletion for year one = Depletion rate x actual gas extraction in year 1 = 2.75 x 700,000 = $1,925,000;
Depletion for year two = Depletion rate x actual gas extraction in year 2 = 2.75 x 800,000 = $2,200,000..
Hope you find the explanation helpful.
