On 1 April 2006 a business purchased a machine costing £112,000. The machine can be used for a total of 20,000 hours over an estimated life of 48 months. At the end of that time the machine is expected to have a trade-in value of £12,000.

The financial year of the business ends on 31 December each year. It is expected that the machine will be used for:
4,000 hours during the financial year ending 31 December 2006 5,000 hours during the financial year ending 31 December 2007 5,000 hours during the financial year ending 31 December 2008 5,000 hours during the financial year ending 31 December 2009 1,000 hours during the financial year ending 31 December 2010 Required:

(a) Calculate the annual depreciation charges on the machine on each of the following bases for each of the financial years ending on 31 December 2006, 2007, 2008, 2009 and 2010:
(i) the straight line method applied on a month for month basis, (ii) the diminishing balance method at 40% per annum applied on a full year basis, and (iii) the units of output method.

(b) Suppose that during the financial year ended 31 December 2007 the machine was used for only 1,500 hours before being sold for £80,000 on 30 June.
Assuming that the business has chosen to apply the straight line method on a month for month basis, show the following accounts for 2007 only:
(i) the machine account, (ii) the provision for depreciation – machine account, and (iii) the assets disposals account.
(Association of Accounting Technicians)