Douggen manufactures and installs specialist industrial pumps. The business commenced trading on 1 January 2012 and purchased the following assets: Plant and machinery £80,000 Motor vehicles £24,000 Before preparing the financial statements, Douggen needs to decide how the business is going to depreciate these various assets.

REQUIRED:

a) Explain why the above assets should be depreciated.

b) If plant and equipment is to be depreciated on the straight-line basis, what should the depreciation charge be for 2012 and 2013, given that it is expected to have a useful life of four years and a scrap value of £8,000 at the end oft hat time?

c) Describe the business's depreciation policy for plant and equipment by completing the following statement: ‘Plant and equipment is to be depreciated at ... % on the straight-line basis:

d) Douggen is considering depreciating motor vehicles either:
* atthe rate of 25% per annum on the straight-line basis 

* atthe rate of 35% per annum on the reducing-balance basis.
(i) Which of the two policies will lead to the smallest depreciation charge for:

(a) the year ended 31 December 2012

(b) the year ended 31 December 2013

(c) both years combined?
(i) Which policy should Douggen choose if the business wants to maximize its profit for those two years?

e) Show the entry for non-current assets on the statement of financial position at 31 December 2012, assuming that Douggen depreciates the motor vehicles at 25% per annum on the straight-line basis.