Which two methods are commonly used for computing depletion?

The two commonly used methods for computing depletion are the Cost and Percentage methods.

The Cost method involves determining depletion based on the total cost of the resource extraction, which includes expenses associated with acquiring the resource, such as exploration costs, development costs, and restoration costs. Under this method, depletion expense is calculated by allocating the total cost of the natural resource over its estimated recoverable units. This approach provides a systematic way to match expenses with revenues, ensuring that the cost is proportional to the volume extracted during the accounting period.

The Percentage method, on the other hand, is based on a specific percentage of the revenue generated from the sale of the resource, typically set by tax regulations. This method can simplify computations for companies with fluctuating sales, as it directly ties the depletion expense to the actual cash flow generated from the resource.

Together, these methods recognize the natural resource's diminishing value over time as it is utilized, ensuring accurate financial reporting and compliance with tax regulations.