Your client, Felix Hammond, the Chairman of a small local company, recently bought a motor van for GH15,000 on 1^st January, 2016. The expected useful life of the motor van is three (3) years and at the end of the useful life it could be sold for GH3,500. He has asked you to clarify some points concerning depreciation. He later disposed of the motor van on 1^st February, 2018 for GH6,300.

Required:

1. Explain the aim of charging depreciation in the financial statements.
2. Explain two methods of depreciation and a reason behind a choice.
3. Calculate the rate of depreciation using the reducing balance method.
4. Calculate the value of depreciation to be charged for 31^st December, 2017.
5. Calculate the gains on the disposal of the motor van on 1^st February, 2018.