On 1 April 20X6 a business purchased a machine costing £112,000. The machine can be used for a total of 20,000 hours over an estimated life of 48 months. At the end of that time the machine is expected to have a trade-in value of £12,000. The financial year of the business ends on 31 December each year. It is expected that the machine will be used for:

4,000 hours during the financial year ending 31 December 20X6

5,000 hours during the financial year ending 31 December 20X7

5,000 hours during the financial year ending 31 December 20X8

5,000 hours during the financial year ending 31 December 20X9

1,000 hours during the financial year ending 31 December 20Y0

Required:

(a) Calculate the annual depreciation charges on the machine on each of the following bases for each of the financial years ending on 31 December 20X6, 20X7, 20X8, 20X9 and 20Y0:

(i) The straight line method applied on a month for month basis,

(ii) The diminishing balance method at 40% per annum applied on a full year basis, and

(iii) The units of output method.

(b) Suppose that during the financial year ended 31 December 20X7 the machine was used for only 1,500 hours before being sold for £80,000 on 30 June. Assuming that the business has chosen to apply the straight line method on a month for month basis, show the following accounts for 20X7 only:

(i) The Machine account,

(ii) The Provision for Depreciation – Machine account, and

(iii) The Assets Disposals account.