Hensman purchased a new machine at a cost of 145 000 at the beginning of the current trading year. The brochure from the company who supplied the machine suggested that it should be able to perform well for 10 000 hours of work. At that stage the machine would have a scrap value estimated at 5000. Hensman has used the machine for 3000 hours in the current year but estimates that the use will reduce in the next three years by 500 hours per year. Hensman has planned that it will be in use for four years in total (including the year just completed) but the product that it contributes to is subject to technical change and it is possible that the market will collapse in a further two years. If the machine is scrapped at the end of a further two years the value will be 50 000, but if it is scrapped in three years time that figure will fall to 5000. Required Calculate the depreciation on the machine to be charged by Hensman in years 1, 2 and 3 making any necessary assumptions using the:

(a) unit of production method

(b) straight line method

(e) reducing balance method. State the assumptions you make and the reason for making them. Which method would you consider the most suitable for this asset?