a) ABC Lid acquired a new packing line from QE Ltd on hire purchase on January 1, 201 1. The cash price (list price) was GHS54,000. The hire purchase agreement is as follows: • Initial deposit payment of GH59,000 on January 1, 2011; Payment of two annual instalment of GHS24,000 on December 31 of 2011, 2012 and a final instalment of GHS20,39 1 on December 31, 2013. • Implicit rate of interest is 25% per annum. It is the policy of ABC to depreciate the PL on straight line basis over 10 years, with no salvage value. Required: Show the ledger entries for the above transactions in the books of ABC Ltd
a) ABC Lid acquired a new packing line from QE Ltd on hire purchase on January 1, 201 1. The cash price (list price) was GHS54,000. The hire purchase agreement is as follows: • Initial deposit payment of GH59,000 on January 1, 2011; Payment of two annual instalment of GHS24,000 on December 31 of 2011, 2012 and a final instalment of GHS20,39 1 on December 31, 2013. • Implicit rate of interest is 25% per annum. It is the policy of ABC to depreciate the PL on straight line basis over 10 years, with no salvage value. Required: Show the ledger entries for the above transactions in the books of ABC Ltd
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
a) ABC Lid acquired a new packing line from QE Ltd on hire purchase on January 1, 201 1. The
cash price (list price) was GHS54,000. The hire purchase agreement is as follows:
• Initial deposit payment of GH59,000 on January 1, 2011;
Payment of two annual instalment of GHS24,000 on December 31 of 2011, 2012 and
a final instalment of GHS20,39 1 on December 31, 2013.
• Implicit rate of interest is 25% per annum.
It is the policy of ABC to depreciate the PL on straight line basis over 10 years, with no
salvage value.
Required:
Show the ledger entries for the above transactions in the books of ABC Ltd
b) On 1 October 2018 XYZ Ltd acquired a machine under the following terms.
Hours
Manufacturer's base price
Trade discount (applying to base price only)
Early settlement discount taken (on the payable amount of the
base cost only)
Freight charges
Electrical installation cost
Staff training in use of machine
Preproduction testing
Purchase of a three-year maintenance contract
Estimated residual value
Estimated life in machine hours
Hours used - year ended 30 September 2019
-year ended 30 September 2020
GHS
3.150.000
20%
5%
90.000
84.000
120.000
66,000
180,000
60,000
18.000
3.600
5,400
-year ended 30 September 2021 (see below)
2.550
On 1 October 2020 XYZ Ltd decided to upgrade the machine by adding new components at a
cost of GHS600,000. This upgrade led to a reduction in the production time per unit of the goods
being manufactured using the machine. The upgrade also increased the estimated remaining life
of the machine at 1 October 2020 to 13.500 machine hours and its estimated residual value was
revised to GHS120,000.
Required:
Prepare extracts from the statement of profit or loss and statement of financial position for the
above machine for each of the three years to 30 September 2021.
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