On April 1,2012,Marlin Company purchased a producing oil well at a cash cost of $3,500,000.It is estimated that 500,000 barrels of oil can be produced over the remaining life of the well.By December 31,2012,25,000 barrels of oil had been produced and sold.The amount of depletion expense on this well for 2012 would be:

Question

Quizplus · Accepted Answer

Depletion expense is determined by dividing the total cost of the asset by the estimated total number of units that can be produced. 
Depletion per unit = Total cost of the well / Estimated number of units to be produced
Depletion expense for 2012 = Depletion per unit x Number of units sold in 2012
Depletion per unit = $3,500,000 / 500,000 barrels = $7 per barrel
Depletion expense for 2012 = $7 x 25,000 barrels = $175,000

On April 1,2012,Marlin Company Purchased a Producing Oil Well at a Cash