Chapter 9, Problem 9.13BE

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, use, or obsolescence. In other words, it is the method of distributing the cost of tangible fixed assets over its estimated useful life.

Declining-balance depreciation:

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:

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

To compute: the annual depreciation for the first year and second year under the declining-balance method