On 1 January 20X7, Carver bought a machine costing £20,000 on hire purchase. He paid a deposit of £6,000 on 1 January 20X7 and he also agreed to pay two annual instalments of £5,828 on 31 December in each year, and a final instalment of £5,831 on 31 December 20X9.

The implied rate of interest in the agreement was 12 per cent. This rate of interest is to be applied to the amount outstanding in the hire purchase loan account as at the beginning of the year.

The machine is to be depreciated on a straight line basis over five years on the assumption that the machine will have no residual value at the end of that time.

Required:

(a) Write up the following accounts for each of the three years to 31 December 20X7, 20X8 and 20X9 respectively:

(i) Machine account;

(ii) Accumulated depreciation on machine account; and

(iii) Hire purchase loan account; and

(b) Show the balance sheet extracts for the year as at 31 December 20X7, 20X8 and 20X9 respectively for the following items:

(i) Machine at cost;

(ii) Accumulated depreciation on the machine;

(iii) Long-term liabilities: obligations under hire purchase contract; and

(iv) Current liabilities: obligations under hire purchase contract.