The Souvenir Company purchased, on 1 January Year 1, a machine producing embossed souvenir badges. The machine cost £16,000 and was estimated to have a five-year life with a residual value of £1,000. 

Required

(a). Prepare a table of depreciation charges and net book value over the five-year life using straight-line depreciation.

(b). Make a guess at the percentage rate to be used in the reducing-balance calculation, and prepare a table of depreciation charges and net book value over the five years using reducing-balance depreciation.

(c). Using the straight-line method of depreciation, demonstrate the effect on the accounting equation of selling the asset at the end of Year 5 for a price of £2,500.

(d). Using the straight-line method of depreciation, demonstrate the effect on the accounting equation of disposing of the asset at the end of Year 5 for a zero scrap value.