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Percentage depletion computes the allowance as a fixed percentage of

  • A.the units extracted in the year
  • B.the property's remaining book value
  • C.gross income from the property
  • D.the property's original cost

Answer: C

Correct answer: gross income from the property

Percentage depletion applies a statutory percentage to the gross income from the property, with no reference to what the property cost. It can therefore exceed the cost over the life, which is why it is a policy instrument rather than a cost allocation, and why it is limited by a proportion of taxable income.

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