Chapter 9, Problem 7Q

To determine

Methods of Depreciation: Depreciation refers to the reduction in the monetary value of a fixed asset due to its use, wear and tear or obsolescence. In other words, 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 units of production each year.
• Double-declining balance 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 Contrast: The effects of the three depreciation methods on annual depreciation expense