Page 265 - Accountancy_F5

S/N Transaction Accounting entries
5. Closing the interest Dr Hire purchase interest account xx
and hire purchase ac- Dr Hire purchase sales account xx
counts at the year-end Cr Income statement xx

Example 8.8
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Irish Company Ltd. is a firm dealing with the production of concrete blocks that are
used for building purposes. On 1 January 2018, the firm acquired a concrete mixer
st
machine from Mlimani Traders on hire purchase agreement. The terms of sale were
as follows:
LANGUAGE EDITING
(a) Cash price of the mixer machine was TZS 500, 000
(b) TZS 200,000 was to be paid on signing of the contract.
(c) The balance was to be paid in annual instalments of TZS 100,000 plus interest.
(d) Interest chargeable on the outstanding balance was 6 per cent per annum.
(e) Depreciation at 20 per cent per annum is to be written-off using the straight-line
method.

Required:
(a) Prepare the relevant accounts in the books of Mlimani Traders from 1 January
st
2018 to 31 December 2020, using the hire purchase interest method.
st
(b) Prepare the relevant accounts in the books of Mlimani Traders from 1 January,
st
2018 to 31 December 2020, using the hire purchase interest suspense method.
st

Solution 8.8
In the books of Mlimani Traders
(a) Using the hire purchase interest method:
Dr Irish Company Ltd. account Cr
Date Details TZS Date Details TZS

01 Jan. 2018 H-purchase sales 500, 000 01 Jan. 2018 Bank: deposit 200,000
31 Dec. 2018 H-purchase interest 18,000 31 Dec. 2018 Bank: instal. 118,000
31 Dec. 2018 Balance c/d 200,000
518,000 518,000
01 Jan. 2019 Balance b/d 200,000 31 Dec. 2019 Bank: instal. 112,000
31 Dec. 2019 H-purchase interest 12,000 31 Dec. 2019 Balance c/d 100,000
212,000 212,000
01 Jan. 2020 Balance b/d 100,000 31 Dec. 2020 Bank: instal. 106,000
31 Dec. 2020 H-purchase interest 6,000 ______
106,000 106,000

Student’s Book Form Five
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