The financial year-end of Mariental General Dealers is 31 December.

Vehicles are depreciated 20 percent per annum using the reducing balance method. Depreciation is calculated on each month of ownership, both in the year of purchase and sale.

The following information relates to the purchase and sale of vehicles from 1 January 2010 to 31 December 2012.

Bought a vehicle on 1 January 2010 for N$60 000 by cheque.

Bought a vehicle on 1 July 2010 for N$80 000 on credit from Audi Centre. Purchased a vehicle on 1 October 2011 for N$100 000 by cheque.

Sold the vehicle bought on 1 January 2010 for N$40 000 by cheque on 30 September 2012.

You are required to:

1. Prepare the following accounts for the three years 1 January 2010 to 31 December 2012.

1. Vehicles account (7 marks)

2. Provision for depreciation on vehicles account (13 marks)

3. Vehicle disposal account (4 marks)

2. Mariental General Dealers uses the reducing balance method for deprecation on vehicles. Do you consider this method to be an appropriate method? Give two reasons for your answer (4 marks)

3. Mariental General Dealers want to change the method of depreciation for vehicles in order to increase the net profit to the year. Discuss if this can be allowed. (2 marks)