Chapter 11, Problem 11.16E

To determine

Depreciation:

It refers to the reduction in the monetary value of fixed tangible assets over its useful life due to its wear and tear or, obsolescence. In other words, it is the method of distributing the cost of tangible fixed assets over its estimated useful life.

Depletion:

It refers to the process of proportionately distributing the cost of the extracting natural resources such as coal, mines, and petroleum from the earth to the number of units extracted.

Unit-of-production Method:

Under this method of depreciation, the depreciation expense is calculated on the basis of units produced in a year. This method is suitable when a company has fluctuating productive rate. The formula to calculate the depreciation expense under this method is as follows:

$\text{Depreciation per unit = }\frac{\text{Cost}-\text{Residual value}}{\text{Estimated units of useful life}}$

$\text{Depreciation Expense = Depreciation per unit }\times \text{ Usage}$

To calculate: The amount of depletion of the timber tract and depreciation of logging roads.