Question: A. Jones bought a motor car on Hire Purchase terms from M.B.J. Ltd. on the 1st January, 1959. The H.P. Price was £2,075 payable by an immediate deposit of £500 and three equal instalments of £525 on 30th June and 31st December, 1959, and the 30th June, 1960. The H.P. Price includes interest at the rate of 10% per annum. The Cash Price was £1,930.
On 31st December, 1959, the only balance on the books relating to the transaction is a debit on Motor Car Account of £1,550. Make any adjusting entries you think desirable and provide for depreciation at 20% per annum. Show how the balance will appear in the Balance Sheet of Jones at 31st December, 1959.