Question:
Emmanuel company Limited purchase a vehicle from Oreoluwa Motors Limited on a hire purchase agreement on July 1, 2016 allowing a 12 yearly instalment of N20,000 each commencing on 31st December,2016. The cash price of the vehicle is N199,100 interest is charged at 6% with half yearly interest. The accounting year end of the buyer is 30 June each year. Depreciation on the vehicle is done on fixed instalment basis at 20% per annum on cost. All installment were paid on the due dates.
Required:
a. Show the relevant accounts in the books of the purchasing company for two years ending 30 June 2016. Using Hire purchase interest method
b. Show the entries that would appear in respect of this transaction in the balance sheet of Emmanuel company Limited as at 30 June 2016