Betax Limited has recently purchased new machinery with the following pricing details.

Rs

Cost per price list

60000

Less 10% trade discount

6000

54000

Delivery costs

1000

Installation costs

2000

The machinery maintenance costs are estimated to be Rs 5000 per annum. The business plans to keep the machinery for five years and then dispose of it for an estimated residual value of Rs 4000.

Required:

a. Calculate the cost figure which should be used as the basis for depreciation.

(2 marks)

b. Calculate the annual depreciation charge using the straight line method.

(2 marks)

c. Prepare the Disposal of Machinery Account if the machinery is sold for Rs 12 000 at the end of four years.

(5 marks)

d. 'Provision for depreciation is made to provide for the replacement of a fixed asset.' Discuss this statement.