Rustenburg Ruiters bought a new machine on 1 January 20x1 for R22 500. The business estimates the machine to have a useful life of six years, and a residual value at the end of six years of R1 500. (Ignore VAT.)

You are required to:

1. Prepare a depreciation schedule to show:

a. The net book value of the machine at the beginning of the year.

b. The annual depreciation expense, for each year of the estimated six-year life under these alternative depreciation methods:

i. Straight-line.

ii. Diminishing-balance (at 33.33% per annum).

2. Assuming that the business earned income of R80 000 and incurred expenses (excluding depreciation expense) of R60 000 for each of the six years to 31 December 20x6, determine the net profit the company would report in its statement of profit or loss & other comprehensive income for the first (20x1) and the sixth (20x6) year, under each of the two alternative depreciation methods.

Assume that the machine was sold for R1 500 at the end of the sixth year.