Ajib commenced business on 1 October 2014 delivering parcels to customers' homes. He purchased a motor van on that date, the details are as follows. Purchase price $9600 Life of motor van 3 years Residual value $1200 Ajib is undecided whether to use the straight-line method or diminishing (reducing) balance method to depreciate the motor van. If Ajib uses the diminishing (reducing) balance method the annual rate of depreciation charged would be 50%. REQUIRED

1. (a)Explain the term depreciation.[2]
2. (b)Complete the following table to show the depreciation to be charged for the years ended 30 September 2015, 2016 and 2017 using the straight-line method and the diminishing (reducing) balance method. For the year ended Straight-line method $ Diminishing (reducing) balance method $ 30 September 2015 30 September 2016 30 September 2017[6]
3. (c)State one advantage of Ajib using the straight-line method when depreciating the motor van.[1]
4. (d)State one advantage of Ajib using the diminishing (reducing) balance method when depreciating the motor van.[1]
5. (e)Ajib is considering: Proposal 1 Charging the total purchase price of the motor van to the 2015 income statement. Proposal 2 Using the diminishing (reducing) balance method to charge depreciation on the motor van in 2015, and then to change to the straight line method for 2016 and 2017. Name and explain which accounting concept would not be complied with if Ajib implemented his proposals. Proposal 1 Accounting concept Explanation.. Proposal 2 Accounting concept Explanation[6]
6. (f)Ajib also incurred the following expenditure. 1 Delivery of motor van from manufacturer 2 Fuel for motor van 3 Signwriting his business name on the motor van 4 Motor van insurance State whether each of the items above is capital expenditure or revenue expenditure. 1 2 3 4[4]