Chapter 10, Problem 10.6CP

To determine

Methods of Depreciation: Depreciation refers to the reduction in the monetary value of a fixed asset due to its wear and tear, or obsolescence. It is a method of distributing the cost of the fixed assets over its estimated useful life.

The three methods of depreciation are:

• Straight-line method: Under the straight-line method of depreciation, the same amount of depreciation is allocated every year over the estimated useful life of an asset.
• Units-of-activity method: In this method of depreciation, the amount of depreciation is charged based on the unit of production each year.
• Double-declining balance method (Accelerated method): In this method of depreciation, the diminishing value of the asset is taken into consideration for determining the depreciation for the succeeding years.

To Respond – Mr. N and Ms. S regarding the maintenance of two set of books, one for tax purposes and another for financial statement purposes.