Explain methods of calculating depreciation, Financial Accounting

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The financial year of Jack and Jill Ltd will end on 31 May 2008. At 1 June 2007, the company had in use equipment with a total accumulated cost of Rs 135,620 which had been depreciated by a total of Rs 81,734. During the year ended 31 May 2008, Jack and Jill Ltd purchased new equipment costing Rs 47,800 and sold off equipment which had originally cost Rs 36,000 and which had been depreciated by Rs 28,224, for Rs 5,700. No further purchases or sales of equipment are planned for May. The policy of the company is to depreciate equipment at 40% using the diminishing balance method. A full year's depreciation is provided for on all equipment in use by the company at the end of each year.

Required:

a) Show the following ledger accounts for the year ended 31 May 2008:

(i) The equipment account ;
(ii) The provision for depreciation on equipment account ;
(iii) The asset disposal account ;

b) Give four reasons why depreciation might occur.

c) Explain briefly two methods of calculating depreciation.


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