ASSIGNMENTOn 1 January, 2010, Ahafoman Contractors (AC) bought anHeavy Duty Crane machine from Tractor and EquipmentCompany (TEC) on Hire Purchase. The terms of the agreementwere that an initial deposit of GHS200,000 was payablefollowed by three installments of GHS189,890 on 31 Decemberin each of the years from 2010 onwards.. TEC sells the machinefor cash at GHS600,000. AC depreciates cranes at the rate of25% on cost (assuming a nil residual value)The accounting years for both TEC and AC end on 31December.Requireda) Calculate the hire purchase interest included in the hirepurchase price.b) Apportion the Hire Purchase Interest over the relevantyears using the Sum of the digits methodc) Writ e up TEC Account (as it will appear in the books ofAC)d) Show the relevant extracts from AC's Income Statementand statement of financial position in respect of the hirepurchase agreement for the relevant years.

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ne Hire Purchase Interest over the Sum of the digits method LC Account (as it will appear in

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

ASSIGNMENT
On 1 January, 2010, Ahafoman Contractors (AC) bought an
Heavy Duty Crane machine from Tractor and Equipment
Company (TEC) on Hire Purchase. The terms of the agreement
were that an initial deposit of GHS200,000 was payable
followed by three installments of GHS189,890 on 31 December
in each of the years from 2010 onwards.. TEC sells the machine
for cash at GHS600,000. AC depreciates cranes at the rate of
25% on cost (assuming a nil residual value)
The accounting years for both TEC and AC end on 31
December.
Required
a) Calculate the hire purchase interest included in the hire
purchase price.
b) Apportion the Hire Purchase Interest over the relevant
years using the Sum of the digits method
c) Writ e up TEC Account (as it will appear in the books of
AC)
d) Show the relevant extracts from AC's Income Statement
and statement of financial position in respect of the hire
purchase agreement for the relevant years.

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