Chapter 11, Problem 11.2P

Requirement – 1

To determine

Depreciation:

It refers to the reduction in the monetary value of fixed tangible assets over its useful life due to its wear and tear or, obsolescence. In other words, it is the method of distributing the cost of tangible fixed assets over its estimated useful life.

Amortization:

It is the process of allocating the value of an intangible asset over its definite useful life.

Straight-line Depreciation:

Under the straight-line method of depreciation, the same amount of depreciation is allocated every year over the estimated useful life of an asset. The formula to calculate the depreciation cost of the asset using the residual value is shown as below:

$\text{Depreciation = }\frac{\left(\text{Cost of the asset}-\text{Residual value}\right)}{\text{Estimated useful life of the asset}}$

Double-declining-balance method:

It is an accelerated method of depreciation under which the depreciation declines in each successive year until the value of asset becomes zero. Under this method, the book value (original cost less accumulated depreciation) of the long-term asset is decreased by a fixed rate. It is double the rate of the straight-line depreciation. Use the following formula to determine the annual depreciation:

$\text{Depreciation = Purchase price}\times \frac{2}{\text{Useful life of the asset}}$

To prepare: A schedule for analyzing the changes in each of the plant asset accounts during 2016.

Requirement – 2

To determine

To prepare: A schedule showing depreciation or amortization expenses of each asset for the year ended December 31, 2016.