When Calculating Depletion, What Is the Proper Treatment of Residual

question 161

Multiple Choice

When calculating depletion, what is the proper treatment of residual value?

• A)There is no residual value in the calculation of depletion expense.
• B)The residual value is subtracted from cost to determine the depletable base.
• C)The residual value is added to cost to determine the depletable base.
• D)Residual value is ignored until the end of the asset's life at which time it is used to limit the final year's expense amount.

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Definitions:

Market Price

The present trading value at which a service or asset is available for sale or purchase.

Rights Offering

An opportunity for current shareholders to purchase additional shares at a discount, before the company offers them to the general public.

Subscription Price

The amount that investors pay to purchase shares of a mutual fund or another similar investment fund.

Rights Offering

A method by which companies raise capital, allowing current shareholders to purchase additional shares at a discounted price before the general public.