Raja purchased an asset under hire purchase system for 60,000 payments to be made 15,000 down and three installments of 18,000 each at the end of each year. The rate of interest is 10% p.a. Raja depreciates assets @ 10% p.a. on diminishing balance.
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Calculation of interest:
Hire purchase price:
Down payment = 15,000
Installment 18000*3 = 54,000
Less: Cash Price = 60,000
Total interest = 9,000
Total = 69,000
| Analysis of payment to vendors | |||||
| Year | Opening balance of cash price | Toward Principal | Toward Interest | Installment | The closing price of the cash price |
| 0 | 60,000 | 15,000 | - | - | 45,000 |
| 1 | 45,000 | 13,500 | 4,500 | 18,000 | 31,500 |
| 2 | 31,500 | 14,850 | 3,150 | 18,000 | 16,650 |
| 3 | 16,650 | 16,650 | 1,350 | 18,000 | - |
| Total | 9,000 | ||||
| Statement of Depreciation | |||
| Year | Opening Balance | Amount of depreciation | Closing Balance |
| 1 | 60,000 | 6,000 | 54,000 |
| 2 | 54,000 | 5,400 | 48,600 |
| 3 | 48,600 | 4,860 | 43,740 |
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