On 1 January 2005 P Wriggle bought a computer (cash price £1,046) from Dowe Ltd on the following hire purchase terms. Wriggle was to make an immediate payment of £300 and three annual payments of £300 on 31 December in each year. The rate of interest chargeable is 10% per annum on the balance at the start of the year.

P Wriggle depreciates this computer by 40% reducing balance each year.

(a) Make the entries relating to this computer in Wriggle’s ledger for the years 2005, 2006 and 2007. (All calculations are to be made to the nearest £.)

(b) Show how the item ‘computer’ would appear in the balance sheet as at 31 December 2005.