Raja purchased an asset under hirepurchase system for 60000 payment to be made 15000down and there installment of 18000 each at the end of each year rate of interest is 10% p. a Raja depreciates assets @10% p. a on diminishing balance method due to financial difficulties Raja could not pay any instalment after first installment and selling company took possesion of the assets. The selling company after spending 1.500 on repairy it sold away the assets for 38000 prepare necessary ledger account in the book of both the painties
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Answer:
Assumptions: 1.It has been assumed that the asset depreciates at the rate of 10% p.a WDV since no useful life and depreciation percentage was mentioned in the question.
2. Installment amount given is inclusive of Interest.
3.Amount due to Hire Vendor at the end of 2nd year has been waived off by the vendor.
Working Note 1: Calculation of value of asset during 2nd year
Written down value of asset at the end of 2 years: 60,000-10%-10%
=48,600
In the Books of Raja
1) Asset A/c
Particulars Amount(Rs.) Particulars Amount(Rs.)
To Hire Vendor A/c 60,000 By Depreciation 6,000
By Balance c/d 54,000
60,000 60,000
To Balance b/d 54,000 By Depreciation 5400
By Hire Vendor 48600
(See W.N 1)
54,000 54,000
2) Hire Vendor A/c
Particulars Amount(Rs.) Particulars Amount(Rs.)
To Cash A/c 15,000 By Asset A/c 60,000
(Downpayment) By Interest A/c 4500
To Cash A/c 18,000
(Installment)
To Balance c/d 31,500
To Asset A/c 48600 By Balance b/d 31500
(see W.N 1)
By Interest A/c 4860
By Balance c/d 12,240
48,600 48,600
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Explanation: