On January 01, 2005 MEHRAN TRADERS bought a machinery costing $ 500,000 having scrap- value of $ 50,000 with an estimated life of 5 years. The business uses REDUCING BALANCE METHOD to depreciate the machinery and the rate of depreciation applies to be 20% and full year policy is applied. The accounting year of the business ends on December 31^st each year.

REQUIRED:

1. Compute the amount of depreciation expense for the year ended December 31, 2005, 2006, 2007 and 2008.
2. Prepare T- accounts.
3. Prepare partial balance sheet/ balance sheet extract.

On 1^st May 2009, the business sold the machinery for $175,000.

REQUIRED: Prepare the disposals account to show the gain or loss on disposal.