Question 1

A manufacturing company starts in business on 1 January 2015. On that date, it purchased a machine by cheque to be used in its manufacturing operations. Demand is expected to be constant, and the machine is expected to be used over a period of eight years with zero residual value at the end of its useful life.

1. Using any amount between RM10, 000 and RM50, 000 as the machine cost, prepare a table comparing the annual depreciation charges and the net book values for the first FIVE (5) years using the straight line method and the reducing balance method. For the reducing balance method, you are to use a depreciation rate of between 35% and 50% per annum. (10 marks)

2. In your opinion, which method of depreciation is more appropriate for the machine? Explain in not more than 100 words. (2 marks)

3. In not more than 300 words, critically discuss THREE (3) causes of depreciation that are relevant to the machine. (6 marks)

4. The machine was sold for cash at 40% of its purchase price on 31 December 2018. It is the companys policy not to charge depreciation in the year of disposal. Prepare for EACH method of depreciation (straight line and reducing balance) the following accounts up to 31 December 2018:

1. The machinery account. (2 marks)
2. The accumulated depreciation account. (6 marks)
3. The disposal account showing clearly the profit or loss on disposal.(4 Marks)

[Total : 30 Marks]