Suppose you are running a manufacturing business. You are manufacturing _______ product and required to purchase a new machine to increase the productivity in order to cope with the increasing demand of your product in the market. You have planned to purchase the machine on the start of the month of May 20__. When you purchased the machine its actual cost worth Rs. _______, other costs include transportation cost Rs._______, setting cost Rs._______, testing cost Rs. ________, and labor cost Rs.________ (sales tax 6% on the actual cost). The machine is supposed to work for 7 years and expected to be sold out when its book value decreased to Rs. 2500. (Round the figures to nearest 10)

Requirements;

1. Complete the above statements with appropriate amounts of your choice.

2. Prepare general entries at the account-able events of the machine (suppose the sale of the

machine earns neither gain nor any loss).

3. Suppose your machine is sold for Rs. 5000. Calculate the gain or loss.

4. Suppose your machine is sold for Rs. 1500. Calculate the gain or loss.

5. Calculate depreciation expense and depreciation rate.

6. Prepare schedule for depreciation of the machine with Straight line method.

7. Prepare schedule for depreciation of the machine with declining balance method.

8. Explain the difference between declining balance method and double declining balance method. When we use half-year convention method.

9. Show the depreciation trend with the help of graph of the two methods illustrated above. 10. Which method you think is suitable and why?