On 10 August 2013 Joblot, a computer software retailer, bought a non-current asset which cost £100,000. It had an anticipated life of four years and an estimated residual value of £20,000.

Due to unforeseen events in the computer industry, the asset was suddenly sold on 10 March 2016 for £45,000.

The policy of the company is to provide depreciation in full in the year of purchase and none in the year of sale.

Required:

(a) Calculate the charge for depreciation for each of the years using both the straight line method and the reducing balance method, showing clearly the net book values as at the end of each of the years.

(b) Calculate the profit or loss on the disposal of the asset under both of the above methods.

(c) Explain why assets are depreciated and provide an example where it would be more appropriate to use the straight line method and another example where it would be more appropriate to use the reducing balance method.

(d) Explain what the figures for net book value that are shown in the statement of financial position represent.