A large bakery scrapped all its equipment and replaced it with new equipment purchased on hire purchase over a period of three years, paying £9,980 on 1 January 2016, and further annual payments of £40,400 due on 31 December 2016, 2017 and 2018.
The cash price of the equipment was £120,000 and the vendor company charged interest at 5% per annum on outstanding balances.
Show the appropriate ledger accounts in the purchaser’s books for the three years and how the items would appear in the statement of financial position at 31 December 2016; depreciation at 10% per annum straight line is to be charged and interest calculated to the nearest £.