Dundas Limited purchased a machine under a hire purchase agreement on 1 January 20X8. The agreement provided for an immediate payment of £2,000, followed by five equal instalments of £3,056, each instalment to be paid on 30 June and 31 December respectively.

The cash price of the machine was £10,000. Dundas estimated that it would have a useful economic life of five years, and its residual value would then be £1,000. 

In apportioning interest to respective accounting periods, the company uses the ‘sum of digits’Note method.

Required:

(a) Write up the following ledger accounts for each of the three years to 31 December 20X8, 20X9 and 20X0 respectively:

(i) Machine hire purchase loan account; and

(ii) Machine hire purchase interest account; and

(b) Show the following balance sheet extracts relating to the machine as at 31 December 20X8, 20X9 and 20X0 respectively:

(i) Fixed assets: machine at net book value;

(ii) Creditors: amounts payable within one year – obligation under hire purchase contract; and

(iii) Creditors: amounts falling due after more than one year – obligation under hire purchase contract.