Fastfreeze Ltd. completed its third year in business as a manufacturer of frozen foods on 31 May

Question:

Fastfreeze Ltd. completed its third year in business as a manufacturer of frozen foods on 31 May 19_5.

A machine was purchased on 1 June 19_2 at a cost of £16 000 and now needs replacing. Installation costs of £4 000 were incurred in June 19_2 and in addition a service contract was entered into for the life of the machine at a cost of £1 000 per annum. A replacement machine will cost £30 000 plus £5 000 installation costs and will require no service agreement. The existing machine has a trade-in value of £3 000. It is company policy to use the reducing balance method of depreciation at a rate of 20% per annum.
Required:

(a) The provision for depreciation account for each of the three years ended 31 May 19_3, 19_4 and 19_S. (S marks)

(b) A statement showing the total charge against profits in the financial year ending 31 May 19_6 if the replacement machine were to be purchased on 31 December 19_5.

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