Question 1 (13 marks)

A motor vehicle was purchased for $160,000 on 1^st January, 2017. It is estimated that it has a useful life of 4 years and will then be sold for $10,000. The financial year ends on 31^st December.

For the diminishing balance method, the firm uses a 50% depreciation rate.

(a) How much depreciation would be shown on the Income Statement for each of the 4 years using the straight-line method?__________________________

(b) Calculate depreciation for the first 2 years using the diminishing balance method

Year Bal. at beginning of year Rate Yearly depreciation on income statement Bal. at end of year

2017 50%

2018 50%

(c) Complete the items below as they would appear on the Balance Sheet at 31 December, 2018.

Straight Line 31 Decemeber 2018 $ Diminishing Balance 31 December 2018 $

Motor Vehicle Motor Vehicle

Less Accumulated Depreciation Less Accumulated Depreciation

Written down value Written down value

(e)Which method causes the higher profit figure for 2018?_______________________________

By how much is the profit higher?________________________________