Chapter 7, Problem 7.2.1MBA

To determine

Concept Introduction:

The fixed assets are of two types, one is tangible and other is intangible. The tangible assets are those which can be touched i.e. having a physical presence. An asset which is used in the business for more than one year and is subject to depreciation is the fixed assets.

Depreciation is the expense which is debited to income statement against the cost of asset i.e. cost of using the asset in the business or in other words, reduction in value due to wear, tear and obsolescence of the asset over its life.

The double-declining-balancing method is the method of computing the depreciation at the rate $200\%$ of the depreciation rate. This reduces the value ofthe asset at a faster rate. The rate is computed by dividing the $100\%$ by the number of years and then multiply it with $2$.

The effects of using double-declining-balance depreciation instead of the straight-line method.