a Define depreciation and explain its relevance to key accounting principles.

b Show the relevant non-current asset accounts and depreciation accounts from the following information for each of the three financial years ending 31 December 2010.

c Show how the information relating to non -current assets and depreciation would appear in the income statement for the year ended 31 December 2010 and the balance sheet as at that date.

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Machinery at cost, 1 January 2008 Computers at cost, 1 January 2008 Motor cars at cost, 1 January 2009 Estimated residual value of machinery after 5 years' useful life Estimated residual value of computers after 4 years' useful life 65,000 20,000 45,000 5,000 Basis of depreciation: machinery and computers - straight line Basis of depreciation: motor cars - 40% on diminishing balance nil