Chapter 9, Problem 9.12EX

(a)

To determine

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:

$\text{Depreciation }=\text{ Purchase price }\times \left(\frac{2}{\text{Useful life}}\right)$

the amount of annual depreciation by the straight-line method.

(b)

To determine

the amount of depreciation for each of the first two years by the double-declining-balance method.