Page 259 - Accountancy_F5

5. For depreciation Dr Depreciation expense account xx
charge (at the end Cr Accumulated depreciation account xx
of accounting With the amount of depreciation charged per annum

period).
6. For transfer Dr Profit or loss account xx
FOR ONLINE READING ONLY
of interest and Cr Interest account xx
depreciation to Cr Depreciation account xx

profit or loss With the amount depreciation and hire purchase inter-
account. est written off in that particular period
LANGUAGE EDITING

Note that a depreciation on assets bought on hire purchase agreement is calculated on
cash price.

Example 8.6
A crushing machine was bought by Busara Ltd. on hire purchase agreement at a
price of TZS 7,238,044. from Makala Supplies Ltd. on 1 January 2018. The agreed
st
price was paid by annual instalments of TZS 2,412,760, TZS 2,412,760, and TZS
2,412,760; on 31 December of 2018, 2019 and 2020 respectively. The cash price was
st
TZS 6,000,000, while the rate of interest was 10 per cent per annum. Depreciation was
calculated using straight line method at the rate of 20 per cent per annum.
Required: Prepare the following accounts in the books of Busara Ltd.:
(a) Crushing machine account
(b) Makala Supplies Ltd. Account
(c) Hire purchase interest account
(d) Depreciation on crushing machine account
(e) Statement of profit or loss (extract)
(f) Statement of financial position (extract)

Student’s Book Form Five
246

23/06/2024 17:36
ACCOUNTANCY_DUMMY_23 JUNE.indd 246
ACCOUNTANCY_DUMMY_23 JUNE.indd 246 23/06/2024 17:36