Reference no: EM132835385

Question - Your friend Xantha has just started a lawn mowing service and has purchased a group of new lawnmowers for $20 000. Xantha expects the mowers to last 5 years and to have zero residual value at that point. Xantha's business plan estimates that the business can cut 5000 lawns over the 5 years, with estimations of 500 lawns for year 1, 1000 for year 2, 1200 for year 3, 1800 for year 4 and 500 for year 5 over the 5 years.

Required -

a) Calculate the accumulated depreciation balance at the end of the second year using each of the following depreciation bases: a. Straight-line b. Reducing balance (25% rate) c. Units-of-production.

b) Based on your calculations, which depreciation basis would produce the highest profits at the end of the second year?

c) Your friend Xantha has never heard of the unit-of-production basis. Explain why companies use it and comment on whether it would make sense for your friend's business.