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 2003, vehicle DL 1 was involved in a crash and was declared a write-off. In full settlement on 20 September 2003:

(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 2002 and 31 December 2003:

(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 2002 27,000 4,680 2,880 DL 2 30 November 2002 36,000 7,200 3,600