North Coast Petroleum, the giant oil company, holds reserves of oil and gas assets. At the end of 2010, assume the cost of North Coast Petroleum’s mineral assets totaled $120 billion, representing 10 billion barrels of oil in the ground.
1. Which depreciation method is similar to the depletion method that North Coast Petroleum and other oil companies use to compute their annual depletion expense for the minerals removed from the ground?
2. Suppose North Coast Petroleum removed 0.4 billion barrels of oil during 2011. Record depletion expense for the year. Show amounts in billions.
3. At December 31, 2010, North Coast Petroleum’s Accumulated Depletion account stood at $38 billion. Report Mineral Assets and Accumulated Depletion at December 31, 2011.
Do North Coast Petroleum’s Mineral Assets appear to be plentiful or mostly used up? Give your reason.