Pak Accounting's Depletion Module automates and simplifies allowance for depletion calculations for Oil & Gas Mineral Properties and provides reports used for IRS tax reporting purposes.
The Oil & Gas industry has in the past required in-depth, labor-intensive data duplication and calculations for depletion allowances that can now be done with existing information from Pak Accounting's General Ledger and Oil & Gas Check Stub modules. In using the existing lease/property information from Pak Accounting's Oil & Gas Check Stub and the General Ledger working or royalty income and expense information, the calculations, and reports are done quickly and without duplicating efforts. Pak Accounting's Depletion Module performs marginal/stripper determinations per IRS mandates, selects Cost or Percent depletion allowances based on the greater of both calculations, addresses carry-overs, reserves, leasehold, and accumulated depletion.
Features:
| • | Automatically compiles current year property leasehold costs, production revenue sales and costs, and production revenue sales volumes from the General Ledger System. |
| • | Automatically identifies and imports current year Lease/Property additions. |
| • | Automatically creates annual depletion allowance general ledger entries. |
| • | Calculates both Percentage Depletion and Cost Depletion for a property and identifies the larger of the two deductions. |
| • | Supports different percentage depletion rates for oil and gas minerals, including marginal, non-marginal, gas fixed contracts and geo-pressurized gas wells. |
| • | Supports user defined allowable overhead costs. |
| • | Calculates the Net Income Limitation on Percentage Depletion of by Property. |
| • | Tests and limits the Percentage Depletion calculation to the maximum allowed daily production levels. |
| • | Tests and limits the Percentage Depletion Deduction to 65% of net taxable income. |
| • | Tracks any unused Percentage Depletion Carry Forward. |
Depletion: An accounting concept which allows a mineral property interest owner to expense the mineral’s reduction in value as it is produced (used up or depleted) over time. This is a similar concept to depreciation of tangible assets.
Percentage Depletion: One of two methods in the United States Tax Code to calculate depletion for a mineral property. The calculation is based on a certain percentage of a property’s gross revenue (currently 15% for marginal properties). Percentage Depletion may be taken in excess of the original mineral costs.
Cost Depletion: One of two methods in the United States Tax Code to calculate depletion for a mineral property. Cost depletion uses a ‘units of production’ method to identify the allowance over time. The Cost Depletion is limited to the minerals cost basis. Cost Depletion calculations may be different for accounting purposes.
Pak Accounting Depletion Module calculation method uses the greater of Percentage versus Cost Depletion. US Tax Code generally requires Mineral Property Interests to use the method that gives you the larger deduction.
Equivalent Oil Barrels (EOB): The US Tax code ‘Unit’ in the unit of measure used in Cost Depletion calculations. When Gas reserves exist, Gas MCF volumes are converted to EOB by a user defined conversion factor. A typical factor used is 6:1. Therefore 600 MCF of gas is equal to 100 EOB.
Reserves: The estimated quantities of Gas as measured in MCF volumes and Oil as measured in Bbls. Reserve quantities, converted to EOB, are required for Cost Depletion calculations.
Marginal Properties: Produce an average of 15 barrels per day (EOB) or less or producing heavy oil. |