The Nelson Oil company estimated that the oil reserve it acquired in 2016 would produce 4 million barrels of oil. The company extracted 300,000 barrels the first year, 500,000 barrels in 2017, and 600,000 barres in 2018. Nelson paid $32,000,000 for the oil reserve. a. Compute the depletion expenses for each year 2016,2017,2018b. Prepare the journal entries to record I. acquisition of the oil reserve and Ii. The deletion for 2016
Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
The Nelson Oil company estimated that the oil reserve it acquired in 2016 would produce 4 million barrels of oil. The company extracted 300,000 barrels the first year, 500,000 barrels in 2017, and 600,000 barres in 2018. Nelson paid $32,000,000 for the oil reserve.
a. Compute the depletion expenses for each year 2016,2017,2018
b. Prepare the
I. acquisition of the oil reserve and
Ii. The deletion for 2016
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