Solution:

Open B Company LTD A/c in the books of A

To record the transaction, we need to open a new account called B Company LTD A/c in the books of A. This account will be used to record all the transactions related to the purchase of the machinery on the installment system.

Interest Calculation

As per the question, interest is chargeable annually. So, to calculate the interest for each installment, we need to find out the time period between the payment due date and the date of payment. We can use the following formula to calculate the interest:

Interest = (Principal * Rate of Interest * Time)/100

Where,

Principal = Amount of installment
Rate of Interest = Annual rate of interest
Time = Time period between payment due date and payment date in years

Calculation of Interest on Installments

1. Interest on the first installment of Rs. 200 is not applicable because it is paid on delivery.

2. Interest on the second installment of Rs. 300 is applicable after 3 months. Let's assume the annual rate of interest is 10%. Therefore, the interest on the second installment will be:

Interest = (300 * 10 * 3/12)/100 = Rs. 7.50

3. Interest on the third installment of Rs. 400 is applicable after 6 months. Therefore, the interest on the third installment will be:

Interest = (400 * 10 * 6/12)/100 = Rs. 20

4. Interest on the fourth installment of Rs. 200 is applicable after 9 months. Therefore, the interest on the fourth installment will be:

Interest = (200 * 10 * 9/12)/100 = Rs. 15

Journal Entries

To record the above transactions, we need to make the following journal entries:

1. On delivery of the machinery

Machinery A/c Dr Rs. 1005
To B Company LTD A/c Rs. 1005

2. After 3 months

B Company LTD A/c Dr Rs. 300
Interest on Instalments A/c Dr Rs. 7.50
To Bank A/c Rs. 307.50

3. After 6 months

B Company LTD A/c Dr Rs. 400
Interest on Instalments A/c Dr Rs. 20
To Bank A/c Rs. 420

4. After 9 months

B Company LTD A/c Dr Rs. 200
Interest on Instalments A/c Dr Rs. 15
To Bank A/c Rs. 215

Conclusion

In conclusion, the above journal entries will help A Company record the purchase of the machinery on the installment system from B Company. The interest on each installment is also calculated and recorded in the Interest on Installments A/c.