On 2 January 20XL Machinery Unlimited purchased a second-hand trailer at a price of €63000. Before placing the trailer in service, the company spent €2200 painting it, €800 replacing tyres and €4000 overhauling the chassis. Machinery Unlimited management estimates that the trailer will remain in service for six years and have a residual value of €l42OO. The trailer’s annual mileage is expected to be 18000 miles in each of the first four years and 14000 miles in each of the next two years.In deciding which depreciation method to use, the general manager requests a depreciation schedule for each of the following depreciation methods: (a) straight-line and (b) units of production.You are asked to:(a) Prepare a depreciation schedule (i.e. for the six-year period) for each depreciation method, showing asset cost, depreciation expense and asset book value.(b) For income tax purposes, Machinery Unlimited wishes to use the depreciation method that minimizes income tax payments in the early years of asset use. Identify the depreciation method that meets this requirement.
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