Pacific Petroleum holds huge reserves of oil assets. Assume that at the end of 2018 , Pacific Petroleum 's cost of oil reserves totaled $ 50,000,000 , representing 5,000,000 barrels of oil.

Requirement:

1. Which method does Pacific Petroleum use to compute depletion?

Units of production method

Explanation:

The formula to compute the depreciation expenses under the units-of-production method:

Depreciation per miles or hours = (Original cost - residual value) : (estimated production)

For first-year or for another year, the depreciation expense would be

= Production units in a year * depreciation per miles or per hour

So, for computing the depletion, the unit of production method is used