Class Notes (1,100,000)
CA (630,000)
UTSC (30,000)
MGA (200)
MGAB01H3 (100)

Natural Resources

Financial Accounting
Course Code
Liang Chen

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Natural Resources
¾ Natural resources consist of timber, oil, gas, and minerals. These assets have two
distinguishing characteristics: they are physically extracted and they are replaceable
only by an act of nature. This is why they are also called wasting assets. Cost of these
assets is the price paid for the property
¾ The amortization of these assets are the same as all other assets, but the amortizable
cost of natural resource is affected by residual value and future removal or site
restoration costs
¾ Future removal and site restoration costs ± The matching principle suggests that
restoration and removal costs should be estimated in advance and allocated over the
useful life of the natural resource
¾ Units-of-activity method ± the total cost of the natural resource less residual value
plus restoration cost is divided by the number of units estimated to be in the resource
¾ Some companies do not use an accumulated amortization account, thus the amount is
credited directly to the natural resource account. Restoration and removal costs are
included in amortization expense, but not accumulated amortization. Instead, they are
recorded separately as a long-term liability (liability for restoration) on the balance
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