Coursework

1. 1. A machine is bought by K Thomas for $3,618 on hire purchase from Suppliers Ltd on 1 January 2003. 2. It is paid by three instalments of $1,206 on 31 December of 2003, 2004, and 2005. 3. 4. The cash price is $3,000. Rate of interest is 10% per annum on the balance outstanding at the start of the year. 5. Straight line depreciation of 20% per annum is to be provided.

Please do a three year hire purchase and shows the balance sheet figures that would appear.

Machinery 2003 Jan 1 Suppliers Ltd (A) 3,000

2003 Dec

31 Bank 31 Balance c/d

(B) (D)

2004 Dec

31 Bank 31 Balance c/d

(B) (D)

2005 Dec

31 Bank

(B)

Suppliers Ltd 2003 1,206 Jan 2,094 Dec 3,300 2004 1,206 Jan 1,097 Dec 2,303 2005 1,206 Jan Dec 1,206

1 Machinery 31 HP interest

(A) (C)

3,000 300 3,300 2,094 209 2,303 1,907 109 1,206

1 Balance b/d 31 HP interest

(D) (C)

1 Balance b/d 31 HP interest

(D) (C)

2003 Dec 31 2004 Dec 31 2005 Dec 31

Suppliers Ltd Suppliers Ltd Suppliers Ltd

Hire Purchase Interest 2003 (C) 300 Dec 31 2004 (C) 209 Dec 31 2005 (C) 109 Dec 31

Profit and loss Profit and loss Profit and loss

(E) (E) (E)

300 209 109

Provision for Depreciation: Machinery 2003 Dec 31 Profit and loss 2004 Dec 31 Profit and loss 2005 Dec 31 Profit and loss

(F) (F) (F)

600 600 600

Balance Sheets as at 31 December 2003 Machinery (at cost) Less Depreciation Owing on hire purchase agreement 600 2,094 2,694 306 2004 Machinery (at cost) Less Depreciation to date Owing on hire purchase agreement 3,000 1,200 1,097 2,297 703 2005 Machinery (at cost) Less Depreciation to date 3,000 1,800 1,200 3,000

2.

List out the essential differences between a hire purchase and a normal purchase. The essential differences between a hire purchase and a normal purchase are: 1. The asset does not belong to the purchaser when it is received from the supplier. Instead it belongs to the supplier providing the hire purchase. 2. The purchaser will pay for the item by installments over a period of time. This may be for as long as two or three years, or even longer. 3. The cost to the buyer will be higher than it would have been had the item been paid for at the time of purchase. The extra money paid is interest. 4. The asset does not legally belong to the purchaser until two things happen: (a) the final installment is paid; and (b) the purchaser agrees to a legal option to buy the asset.