Dundas Limited purchased a machine under a hire purchase agreement on 1 January 2008.

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’ ^{Autrors note} method.

Required:

(a) Write up the following ledger accounts for each of the three years to 31 December 2008, 2009 and 2010 respectively:
(i) machine hire purchase loan account; and (if) machine hire purchase interest account.

(b) Show the following balance sheet extracts relating to the machine as at 31 December 2008, 2009 and 2010 respectively:
(i) non-current assets: machine at net book value;
(ii) current liabilities: accounts payable — obligation under hire purchase contract; and (iii) non-current liabilities: accounts payable — obligation under hire purchase contract.