Question
1. (a) Graham Weston, a sole trader, keeps referring to the motor vehicle used in the business as my car . You, as his
1.(a) Graham Weston, a sole trader, keeps referring to the motor vehicle used in the business as "my car". You, as his accountant, have told him that the car does not belong to him but to the firm. He replied that of course it belongs to him, and furthermore, if the firm went bankrupt he would be able to keep the car. Use the appropriate accounting concept to help explain to Graham whose approach is correct. (3 marks)
(b) Graham Weston informs you that his business will use depreciation as a means to set aside cash each year so that it eventually has the funds to purchase a replacement car when this becomes necessary.
(i) Comment briefly on the above statement. (2 marks)
(ii) Use an appropriate accounting concept to help explain why a business will provide for depreciation. (3 marks)
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