X Transport Ltd. purchased from Delhi Motors 3 Tempos costing Rs. 50,000 each on

Question

X Transport Ltd. purchased from Delhi Motors 3 Tempos costing Rs. 50,000 each on the hire purchase system on 1-1-2004. Payment was to be made Rs. 30,000 down and the remainder in 3 equal annual instalments payable on 31-12-2004, 31-12-2005 and 31-12-99 together with interest @ 9%. X Transport Ltd. write off depreciation at the rate of 20% on the diminishing balance. It paid the instalment due at the end of the first year i.e. 31-12-2004 but could not pay the next on 31-12-2005. Delhi Motors agreed to leave one Tempo with the purchaser on 1-1-2006 adjusting the value of the other 2 Tempos against the amount due on 31-12-2005. The Tempos were valued on the basis of 30% depreciation annually. What will be the value of Tempo left with buyer & taken away by seller at the end of 2nd Year.

Explanation / Answer

Temp COst = 50000

Down Pament = 30000

Loan amount = PV=20000 @9% for 3 Yrs

So ANnual Payment = PMT(rate,nper,PV,FV)

= PMT(9%,3,20000,0)

= $7,900

Dep using 20% diminishaing bal:

Dep for 2004 = 50000*20% = 10000, Book Val = 40000

So Dep for 2005 = 40000*20% = 8000, Book Val = 32000

So Value of Temp left with Buyer is 32000 ...Ans(a)

Dep using 30% Annual rate:

Dep for 2 Yrs = 50000*2*30% = 30000

So Book value on 1Jan06 = 50000-30000 = 20000

So Book Value for 2T = 2*20000 = 40000

So Value fo Temp taken by Seller is 40000 ...Ans(b)

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