Laddis Ltd bought a machine for £5,700. Depreciation was provided on a straight line basis, estimating the machine’s useful life to be six years and its residual value at £300. At the start of the third year of the machine’s life it was sold for £1,900.

The company immediately replaced the old machine with a new one which cost £8,000. The estimated life of the new machine is ten years, with a residual value of £400. The company decided to depreciate the new machine on a reducing balance basis using an annual rate of 20 per cent.

(a) For the old machine, prepare:

– the asset account;

– the accumulated depreciation account;

– the asset disposal account;

for the years it was owned by the company.

(b) For the new machine, prepare a table showing, for the first three years it is owned, the annual depreciation, the accumulated depreciation and the written down value.