D Lane purchased two cars for his business under hire purchase agreements:

Both agreements provided for payment to be made in 24 monthly instalments commencing on the last day of the month following purchase.

On 1 September 20X3, vehicle DL 1 was involved in a crash and was declared a write-off. In full settlement on 20 September 20X3:

(a) The motor insurers paid out £18,750, and

(b) The hire purchase company accepted £10,700 for the termination of the agreement.

The firm prepares its financial statements to 31 December and provides depreciation on a straight line basis at a rate of 25 per cent per annum for motor vehicles, apportioned as from the date of purchase and up to the date of disposal.

All instalments were paid on the due dates.

The remaining balance on the hire purchase company account in respect of vehicle DL 1 is to be written off.

Required:

Record these transactions in the following accounts, carrying down the balances as on 31 December 20X2 and 31 December 20X3:

(a) Motor vehicles

(b) Depreciation

(c) Hire purchase company

(d) Assets disposal.

Transcribed Image Text:

Registration number Date of purchase Cash price Deposit Interest (deemed to accrue evenly over the period of the agreement) DL 1 31 July 20X2 £27,000 £4,680 £2,880 DL 2 30 November 20X2 £36,000 £7,200 £3,600