Question

An organisation buys a truck on hire purchase The cost is 500000 The contract states a deposit or 35% and 12 annual payments of 49922 The sum of digs method is used to spread the finance cost (a) How much is the total finance cost? Finance CFinance cost (b) How much interest is charged in the accounts in year 5 of the contract? erest Interest 2 Marks (c) By how much are creditors reduced in year 8 of the contract? Amount Amount 2 Marks

Answer 1

total finance cost is 274064

interest in 5 year = 17568.21

creditors reduced in year 8 is 21812.87

Explanation:

given data

cost = 500000

rate 35%

installment = 12

annual payment = 49922

to find out

the total finance cost and interest is charged in 5 year and creditors reduced in year 8

solution

we know cost is 500000 so down payment will be

payment = 35% of 500000 = 35/100 × 500000

so payment = 175000

and 12 installment purchase price is 12 × 49922

purchase price = 599064

so total finance cost is payment + purchase price - cost

finance cost = 175000 + 599064 - 500000

so total finance cost is 274064

and

we know in 1 to 12 digit sum is 78

so interest in 5 year

interest = 5/78 of total finance cost

interest = 5/78 × 274064

interest in 5 year = 17568.21

and

interest in 8 year

interest = 8/78 of total finance cost

interest = 8/78 × 274064

interest in 8 year = 28109.13

so

creditors reduced in year 8 = 49922- 28109.13

creditors reduced in year 8 is 21812.87