Page 255 - Accountancy_F5

Details TZS

Down Payment 697,500

1 Instalment on 30 June 2022 1,069,500
th
st
2 instalment on 30 June 2023 1,353,000
nd
th
FOR ONLINE READING ONLY
3 Instalment on 30 June 2024 630,000
th
rd
The rate of interest is 5 per cent per annum, the annuity table shows the present value
of TZS 1 in different periods as:
Period 0 1 2 3
LANGUAGE EDITING
Interest rate 5% 1.000 0.9524 0.9070 0.8639

Required: Calculate the cash price of the welding machine.

Solution 8.4
Down Instalments Present value of a TZS
payment TZS single sum at 5%

July 2021 697,500 - 1 697,500
30 June 2022 - 1,069,500 0.9524 1,018,592
th
30 June 2023 - 1,353,000 0.9070 1,227,171
th
30 June 2024 - 630,000 0.8639 544,257
th
Total cash price 3,487,520

Calculation of cash price without using an annuity table
Calculating cash price without using an annuity table involves, first; determining the
last instalment. Assuming there are three instalments, in this case, the interest will be
calculated on the third instalment, then on the-second and finally on the first instalment.
It is important to note that, no interest is calculated on the down payment, as it does
not involve any element of interest. In this method, cash price is calculated using the
total amount due on the hire purchase price. The interest involved in each instalment
is calculated first. Then, this interest amount is subtracted from the total amount due to
obtain the outstanding amount of the cash price. A relevant formula to use is given as
follows:

Interest rate
Interest = Total amount due at the timeof instalment #
100 + Interest rate
Important steps to be followed when calculating cash price due at the time of each
instalment, assuming there are three yearly instalments, are as follows:

Student’s Book Form Five
242

23/06/2024 17:36
ACCOUNTANCY_DUMMY_23 JUNE.indd 242 23/06/2024 17:36
ACCOUNTANCY_DUMMY_23 JUNE.indd 242