(a) Explain whether the policy for providing for depreciation on fixed assets in the annual income statement has any connection, direct or otherwise, _ with either the recovery of the original cost of the assets or the annual cash flow of a company.

(b) Outline .

(i) the arguments for using historical cost for depreciation purposes;

(ii) the deficiencies of this method which might be overcome by using the current replacement cost in a time of rising prices.

(c) State the implications, and comment on the consequences, of a decision by a company to reduce the percentage figure used in depreciation calculations at the end of the financial year for which profits are lower than in previous years.