Question 1 (7 marks)

Miss Nancy started a lawn moving business in Gold Coast, Queensland, Australia. For this purpose, she purchased a group of new lawn mowers for $20 000. The accountant of Miss Nancy told her that she must have to decide the useful life and residual value of these new lawn mowers. After an initial consultation with the stakeholders, she decided that the mowers to last five years and have negligible resale value at that point. The business plan projects cutting 5000 lawns over five years. The yearly projection is as follows:

• 1^st Year: 500 lawns,
• 2^nd Year: 1 000 lawns,
• 3^rd Year: 1 200 lawns,
• 4^th Year: 1 800 lawns, and
• 5^th Year: 500 lawns.

Required:

1. Calculate the accumulated depreciation balance at the end of the second year using each of the following depreciation bases: (a) straight-line [1.5 Marks]; (b) reducing balance (25 per cent rate) [2 Marks]; and (c) units-of-production [1.5 Marks].
2. Based on your calculations, which depreciation basis would produce the highest retained profits at the end of the second year? (2 Marks)