Depreciation calculations Lawnmowing Limited has purchased a group of new lawnmowers for $40 000. The owner expects the mowers to last five years and to have negligible resale value at that point. The business plan projects cutting 5000 lawns over the five years, with per-year projections of 500, 1000, 1200, 1800 and 500 lawns over the five years.

1 Calculate the accumulated depreciation balance at the end of the second year using each of the following depreciation bases:

a straight-line b reducing balance (25 per cent rate)

c units-of-production.

2 Based on your calculations, which depreciation basis would produce the highest retained profits at the end of the second year?

3 If the units-of-production method is used, assume that the actual usage equals the estimate, and on the first day of the fifth year, all the lawnmowers are sold at their scrap metal value of $2000. Ignoring income taxes, calculate the gain or loss on sale.