Which asset category is associated with depletion rather than depreciation or amortization?

Which asset category is associated with depletion rather than depreciation or amortization?

• A. Depreciation applies to tangible fixed assets.
• B. Amortization applies to intangible assets.
• C. Depletion applies to natural resources.
• D. All three reduce income.

Answer: (C)

Depletion is the method used to allocate the cost of natural resources over the period they are exploited. This category covers resources that are finite and realistically consumed through extraction or harvest, such as minerals, oil, gas, or timber. Depreciation, by contrast, applies to tangible fixed assets like buildings and equipment, while amortization applies to intangible assets such as patents or goodwill. In practice, a company with a natural resource asset allocates its cost to depletion as its resources are extracted, often using a units-of-production approach, so the expense tracks actual usage and reduces the asset’s carrying amount accordingly. This focus on natural resources explains why depletion, not depreciation or amortization, is the appropriate term for this asset category.

Depletion is the method used to allocate the cost of natural resources over the period they are exploited. This category covers resources that are finite and realistically consumed through extraction or harvest, such as minerals, oil, gas, or timber. Depreciation, by contrast, applies to tangible fixed assets like buildings and equipment, while amortization applies to intangible assets such as patents or goodwill. In practice, a company with a natural resource asset allocates its cost to depletion as its resources are extracted, often using a units-of-production approach, so the expense tracks actual usage and reduces the asset’s carrying amount accordingly. This focus on natural resources explains why depletion, not depreciation or amortization, is the appropriate term for this asset category.