Chapter 9, Problem 9.4BE

To determine

Depreciation: Depreciation refers to the reduced value of a fixed asset due to its wear and tear or obsolescence. It is a method of distributing the cost of the fixed assets over its estimated useful life. The following is the formula to calculate the depreciation.

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.

$\text{Depreciation cost}=\frac{\text{Cost of the asset-Salvage value}}{\text{Estimated useful life of the asset}}$

To calculate: Annual depreciation expense for the 1^st and 2^nd years using straight line method.