Which method allocates the cost of natural resources as they are extracted?

The correct choice is C, which refers to depletion. This method is specifically designed for the allocation of costs associated with natural resources such as minerals, oil, and timber. Depletion systematically recognizes the reduction in the value of a natural resource asset as it is extracted and used.

As natural resources are extracted, they are consumed; thus, the corresponding costs must be allocated over the periods in which the resources are used up. The depletion expense is calculated based on the quantity of the resource extracted during the period, which appropriately matches the cost of the resource with the revenue generated from its usage. This method ensures that financial statements accurately reflect the consumption of these resources over time.

Amortization typically relates to the allocation of cost for intangible assets over their useful lives, while depreciation pertains to tangible assets like equipment and buildings. Capitalization involves recording a cost as an asset on the balance sheet rather than expensing it outright, which does not apply to the specific allocation of natural resource costs in this context. Therefore, depletion is the appropriate method for addressing the costs associated with the extraction of natural resources.