QUESTION 3

On 1 January 2017, Ong-Punya Bhd sold a turbine machine to Sun-Yee Bhd under a hire-purchase agreement. The cost and selling price of the turbine machine were RM450,000 and RM500,000, respectively. The agreement required a deposit of RM100,000 and further instalments of RM8,000 each month for 5 years starting from 31 January 2017. The interest rate charged was 4% per annum. Sun-Yee Bhd uses net method to account for the hire-purchase and sum-of-years digit method to calculate the interest expenses. The economic life of the turbine machine was 9 years with estimated residual value of RM50,000. The turbine machine was depreciated under the straight-line method and Sun-Yee Bhd closes its accounts on 31 December every year.

On 7 March 2019, Sun-Yee Bhd received a notice from Ong-Punya Bhd to repossess the turbine machine due to its default payments in January and February. The turbine machine was taken away by Ong-Punya Bhd on 30 March 2019 and incurred costs such as storage expense RM1,000, repossession expense RM800 and other expenses RM500. At the date of repossession, Ong-Punya Bhd determined that the repossession value of the turbine machine was similar to its carrying amount. Sun-Yee Bhd calculated the depreciation up to the date of reclamation by the Ong-Punya Bhd.

REQUIRED:

(Round your answer to two decimal points)

(a)Determine the hire-purchase price and total interest for Sun-Yee Bhd. Show your workings.

(b)Prepare the related journal entries for Sun-Yee Bhd on 1 January 2017 and 31 December 2017.

(c)Assume that Ong-Punya Bhd uses the perpetual inventory system and recognise the gross profit immediately. Prepare the journal entries for Ong-Punya Bhd on 1 January 2017.

(d)Calculate the amount to be paid or claimed by Sun-Yee Bhd for the repossession of the turbine machine on 30 March 2019.

(e)State TWO (2) conditions for the repossession of the asset by the owner under the Hire-Purchase Act 1967.