Final answer:
It is false that companies compute depletion on a straight-line basis. Depletion is typically calculated using the units-of-production method, which better reflects the varying extraction rates and the finite nature of resources like fossil fuels.
Step-by-step explanation:
The statement that companies compute depletion on a straight-line basis is false. Depletion, being an accounting process used for allocating the cost of natural resources, typically employs the units-of-production method. This is directly linked to the physical extraction of the resource, which is quite distinct from the constant percentage applied in the straight-line method used for most other types of depreciation. The units-of-production model aligns cost with actual usage, which can vary from year to year based on how much of the resource is extracted.
Real-world extraction of resources like fossil fuels demonstrates a more complex scenario than simple straight-line depletion would suggest. We often witness a pattern where the easiest resources are accessed first (the low-hanging fruit), as highlighted by the R/P ratio. As these resources become scarcer, the extraction of more challenging reserves begins, potentially altering the rate of production and, consequently, the rate of depletion. These factors can bring about a peak in resource extraction followed by decline, resembling more a symmetric bell curve than a straight line.
The approach of the R/P ratio and the finite nature of resources such as fossil fuels reveals that the units-of-production method is more reflective of actual usage trends and resource availability than the simplistic straight-line basis. Companies must account for factors like declining reserves and increasing difficulty of extraction, affecting the sustainability and financial planning associated with resource depletion.