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Question- Under a hire purchase deal structured by X Finance Ltd. for Y Corporation, the finance company has offered to finance the purchase of equipment that costs Rs. 200 lakh. The flat rate of interest would be 15 percent. The amount has to be repaid in 48 equated monthly installments in advance. Y is required to make cash down payment of 25 percent. It uses the written down value (WDV) method of depreciation. The depreciation is at 30 percent on similar assets. Calculate the allocation of total charge for credit (finance charge), based on-

• Effective rate of interest (ERI)/Annual percentage rate (APR) method.
• Sum-of-year-digits (SOYD) method.
• Straight line method (SLM) of depreciation.

How will the deal be recorded in the financial statements of the hirer (Y) in the first two years? You may make necessary assumptions, wherever necessary.

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M9587631

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