Legal Definitions - depletion reserve

A depletion reserve is an accounting term used to describe a charge to income that reflects the decrease in the value of a wasting asset. This type of asset is one that is used up over time, such as an oil reserve.

For example, let's say a company owns an oil reserve that is estimated to contain 1 million barrels of oil. Each year, the company extracts and sells 100,000 barrels of oil. As a result, the value of the oil reserve decreases each year. To account for this decrease in value, the company would create a depletion reserve and charge it to their income statement.

Another example of a wasting asset could be a timber forest. As trees are harvested and sold, the value of the forest decreases. A depletion reserve would be created to account for this decrease in value.

In summary, a depletion reserve is a way for companies to account for the decrease in value of a wasting asset over time.