A machine was bought on credit for £15,000 from the XY Manufacturing Co Ltd, on 1 October 2015. The estimated useful economic life of the machine was seven years and the estimated scrap value £1,000. The machine account is to be maintained at cost. Financial statements are prepared annually to 30 September and the straight line depreciation method is used on machines.

Required:

(a) Prepare the journal entries and ledger accounts to record the machine and its depreciation for the first two years of its working life.
(B) Illustrate how the machine would appear in the statement of financial position at 30 September 2017.

(c) The machine was sold for £7,500 cash to another manufacturer on 1 October 2018. A new replacement machine was bought on credit for £18,000 from the XY Manufacturing Co Ltd. It also has an estimated useful economic life of seven years but its estimated scrap value is £1,200.

Required:

(a) Prepare the machine account, the accumulated provision for depreciation account and the machine disposal account for the year to 30 September 2019.

(b) Repeat

(a) but this time assume that the selling price of the old machine was £12,000.