On 1 July 2016, Indah Trading sold a car, under hire purchase agreement to Nizam Enterprise. The cash price of the car was RM96,000, while the cost to Indah Trading was 20% below the cash price.

The terms of the agreement stated that an initial deposit of RM10,800 was to be paid immediately on that date followed by fourteen (14) half-yearly installments. The payment for the first thirteen (13) installments was RM7,200 each while the final installment amounted to RM4,607. The first installment was due on 31 December 2016. After paying the sixth installment, Nizam Enterprise decided to settle the remaining sum and had to pay RM51,755 to settle the remaining payments.

Indah Trading prepares its accounts on 30 June of each year. The interest is charged at 4% per annum calculated at half-yearly basis, on outstanding balances. Depreciation is calculated at 10% per annum, on straight line basis.

Required:

1. Show the computation of hire purchase interest for each half-yearly period up to the year ended 30 June 2019.

(7 marks)

2. Prepare the following account in the books of Nizam Enterprise for the year ended 30 June 2017, 30 June 2018 and 30 June 2019:

1. Car account.

2. Hire purchase creditor account.

Answer rating: 100% (QA)

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