Unit of revenue method

The unit of revenue method is a technique used in the oil and gas industry for charging capitalized costs to expense, using the ratio of current gross revenue to future gross revenues. The current gross revenue figure is derived by multiplying actual production during the period by the actual selling price, excluding royalty payments. The future gross revenues figure is derived by multiplying current prices by the estimated quantity of proved reserves, excluding royalty payments.

A firm can only use the unit of revenue method if it employs the full cost method to account for its expenses.

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Oil and Gas Accounting