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How to compute the amount to be paid

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Question - On 1 January 2018, Neon Bhd sold a packaging machine to Apex Bhd under a hire-purchase agreement. The cost and cash price of the packaging machine were RM18,000 and RM35,000, respectively. The agreement required a deposit of RM7,000 and further instalments of RM1,200 each month for 3 years starting from 31 January 2018.

On 1 December 2018, Neon Bhd discovered that Apex Bhd defaults on payments since October 2018. After serving 'the notice of intention to repossess' to Apex Bhd, the company repossessed the packaging machine on 31 December 2018, with repossession cost and storage cost of RM240 and RM100 respectively. Apex Bhd decided to let the goods be repossessed. The market price for the identical packaging machine is RM29,500.

Apex Bhd used gross method to account for the hire purchase and a straight line method to compute the interest expense. Neon Bhd employed sales method to account for hire purchase and a sum-of-the-years digit method to compute the interest revenue. Apex Bhd recognised the interest on each of the instalment date whereas Neon Bhd recognised the interest at the end of accounting period.

REQUIRED -

(a) How to determine the hire-purchase price and total interest for Apex Bhd. Show your workings.

(b) How to prepare the journal entries for Apex Bhd to record the transaction on 1 January 2018 and 31 January 2018.

(c) How to compute the amount to be paid to or to be received from Apex Bhd for the settlement of the repossession on 31 December 2018.

(d) Following to the default payment, assume that the new accountant of Apex Bhd, Mr Anuar refused to return the packaging machine as he stated that his company has possessed the packaging machine from the day of acquisition and that the ownership belongs to his company. Discuss on the appropriateness of Mr Anuar's action.

Reference no: EM132595778

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