Under Hire Purchase System, an individual purchases an asset but pays for it in installments over a period of time. The seller retains the ownership of the asset until the buyer makes the complete payment. In this case, Raja purchased an asset for 60000 under the Hire Purchase System and made a down payment of 15000. He was to make three installments of 18000 each at the end of each year.



The interest rate in this case is 10% per annum. This means that Raja has to pay 10% of the outstanding balance as interest every year until he makes the full payment. The interest is calculated on the outstanding balance at the end of each year.



Raja depreciates the asset at 10% p.a. on the diminishing balance method. This means that he calculates the depreciation on the asset every year on the remaining balance after deducting the depreciation of the previous year.



Year 1:
Asset Value: 60000
Down Payment: 15000
Outstanding Balance: 45000
Interest: 4500 (10% of 45000)
Depreciation: 4500 (10% of 45000)

End of Year 1 Balance: 36000 (Outstanding balance - Interest - Depreciation)

Year 2:
Asset Value: 60000
Down Payment: 15000
Outstanding Balance: 36000
Interest: 3600 (10% of 36000)
Depreciation: 3240 (10% of 36000 - Depreciation of previous year)

End of Year 2 Balance: 29160 (Outstanding balance - Interest - Depreciation)

Year 3:
Asset Value: 60000
Down Payment: 15000
Outstanding Balance: 29160
Interest: 2916 (10% of 29160)
Depreciation: 2624.4 (10% of 29160 - Depreciation of previous year)

End of Year 3 Balance: 23619.6 (Outstanding balance - Interest - Depreciation)



Total Payment = Down Payment + Installments = 15000 + (18000 x 3) = 69000
Final Balance = Outstanding Balance - Depreciation of the last year = 23619.6 - 2624.4 = 20995.2

Therefore, Raja paid a total of 69000 for an asset that was worth 60000. The final balance after the depreciation of the last year was 20995.2.

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