What does depletion apply to?

Depletion specifically applies to natural resources as a method of allocating the cost of extracting these resources over their useful life. This accounting process is similar to depreciation, which is used for tangible fixed assets, but it is unique to resources such as minerals, oil, timber, and other natural commodities that can be physically extracted from the earth.

When a company extracts natural resources, it reduces the quantity available, which in turn necessitates the recognition of an expense related to that resource’s depletion. This ensures that the costs associated with the resource are matched with the revenue generated from its sale. It reflects the consumption of an asset over time, highlighting the diminishing economic benefits as the resource is used.

In contrast, tangible fixed assets and equipment generally employ depreciation to account for their gradual wear and tear over time, while intangible assets have their own amortization processes. Therefore, depletion's application is specifically tailored to natural resources, making it the correct answer.