Pusher commenced business on 1 January 20X0 with two lorries - A and B. A cost £1,000 and B cost £1,600. On 3 March 20X1, A was written off in an accident and Pusher received £750 from the insurance company. This vehicle was replaced on 10 March 20X1 by C which cost £2,000.
A full year's depreciation is charged in the year of acquisition and no depreciation is charged in the year of disposal.
a. You are required to show the appropriate extracts from Pusher's statement of financial position and statement of profit and loss for the three years to 31/12/X0, 31/12/X1 and 31/12/X2 assuming that:
i the vehicles are depreciated at 20 per cent on the straight-line method.
ii the vehicles are depreciated at 25 per cent on the reducing balance method.
b. Comment briefly on the pros and cons of using the straight line and reducing balance methods of depreciation.