Professional Documents
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INTRODUCTION
It is not always possible by a purchaser to meet up the higher demand for goods due to
immediate cash payment. To meet this demand the concept of Hire purchase is very popular
in the market.
Under this system the purchaser (Hirer) pays the entire amount in staggered way viz. monthly,
quarterly or yearly with some interest. Under this system the goods are sold with the follow-
ing conditions.
Possession of goods is delivered to a hirer but the title to the goods (Ownership) are trans-
ferred only when the agreed sum( Hire Purchase price) is paid by the hirer.
Such hirer has a right to terminate the agreement at any time before the property so passes.
That means he has the option to return the goods in which case he need not pay installments
falling due thereafter. However, the hirer cannot recover the sums already paid as such sums
legally represent hire charges of the goods in question.
The hire-purchaser, during that period of possession of goods, cannot damage, destroy, pledge
or sell such goods. He is supposed to take all such care of goods as a prudent person does in his
own goods.
In case of Installment sale, it is not only the possession of goods but also the ownership in goods
is transferred to the buyer immediately at the time of agreement.
Further. in installment system if the buyer stops the payment of dues, then He does not have
the right of seizing his goods. The differences between installment sale and hire-purchase are
as below:
Particulars Hire Purchase Installment sale
Ownership‘ Stipulates the time at which the Ownership passes at the
ownership passes to the buyer. It is time of Sale
usually on the payment of last
installment
Default in making Seller can repossess the goods. In that Seller does not have any
payment case the installment so far paid is other right except the right
treated to be Hiring charges. of suing the buyer for the
non-payment of price.
Right of sale or No right to sale or otherwise transfer Right to sale or otherwise
other wise the goods since the legal position of transfer the goods
the hirer is bailee.
Loss ot damages to Any loss occurring to goods has to be Any loss occurring to goods
the goods. borne by the seller if the buyer takes has to be borne by the buyer.
reasonable care.
80 Financial Accounting
SITUATION – I : WHEN RATE OF INTEREST, TOTAL CASH PRICE AND IN-
STALLMENTS ARE GIVEN
Illustration 1 : X purchases a car on hire-purchase system on 1.1.07. The total cash price of the
car is Rs. 4,50,000 payable Rs. 90000 down and three installments of Rs. 1,70,000, Rs. 1,50,000
and Rs. 1,08,460 payable at the end of first, second and third year respectively. Interest is charged
at 10% p.a.
You are required to calculate interest paid by the buyer to the seller each year.
Solution: Following table is useful for calculating interest paid with each installment:
Analysis of Instalments
Illustration 2 :
X purchased a T.V on hire-purchase system. As per terms he is required to pay Rs. 3000 down,
Rs. 4000 at the end of first year, Rs. 3000 at the end of second year, and Rs. 5000 at end of third
year. Interest is charged at 12% p.a.
You are required to calculate total cash price of T.V and interest paid with each install ment.
Solution:
Financial Accounting 81
ROYALTY AND HIRE PURCHASE
SITUATION – III: -WHEN ONLY INSTALLMENTS ARE GIVEN, BUT CASH PRICE AND
RATE OF INTEREST ARE NOT GIVEN.
Illustration 3 :
X & Co. purchased a Motor car on April 1, 2007 on hire-purchase paying Rs. 60,000 cash down
and balance in four annual installments of Rs. 55,000, Rs. 50,000.,Rs. 45000 and Rs. 40,000 each
Installment comprising equal amount of cash price at the end of each accounting period. You
are required to calculate total cash price and amount of interest in each Installment.
82 Financial Accounting
Thus for the installments, starting from last installment, we have the following equations:
(i) X+ I = 40,000
(ii) X+ 2I = 45,000
(iii) X+3I = 50,000
(iv) X +4I = 55,000
Subtracting any preceding equation from the following equation we get=Rs. 5,000 and by
substituting the value of I in any equation we get X= Rs. 40,000.
The hire-purchase price is divided into cash price and interest parts as under:
In such questions the reference to annuity table gives the present value of the annuity for a
number of years at a certain rate of interest. This present worth is equal to total cash price.
Therefore, with the help of annuity tables the total cash price of the total installments given can
be calculated and then question can be solved by the first method.
Accounting treatment.
Accounting treatment in the books of buyer and seller are in below:
In the Books of theHire-Purchaser
Financial Accounting 83
ROYALTY AND HIRE PURCHASE
Accounting Entries:
First year(At the begining);
(1) on acquisition of H.P.Asset
For 2nd and subsequent years: Entries (3) to (6) will be recorded.
84 Financial Accounting
(4) For payment of instalment:
Hire Vendor A/c Dr.
To Bank A/c
For 2nd and every subsequent years: entries (3) to (6) will be recorded.
In the Books of Vendor
Goods which are sold under HP system may be classified into two categories. They are
(A) Items of large value and long life which buyers treat as fixed assets and
(B) Small consumer items which are purchased by general public such as radios, TV sets, tape
recorders, fans, washing machines, etc. The buyers of such items being general public do
not make any accounting entries. The accounting methods depend on the nature of goods
sold. Let us discuss the accounting treatment for large items.
(A) Large items: In the case of hire-purchase sales there are three components in the selling
price as shown below:
(1) Cost Price
+ (2) Gross Profit = Cash Price
+ (3) Interest = Hire-Purchase sales price.
The accounting methods generally recognize gross profit at the point of sale. Regarding inter-
est there are two methods.
Sales Method :
Under this method, interest is recognized only when the instalment is due.
Accounting Entries:
Financial Accounting 85
ROYALTY AND HIRE PURCHASE
86 Financial Accounting
DEFAULT AND REPOSSESSION
When hirer is in default in making payments in time, the owner takes back the possession of
goods. There are two possibilities:
(a) Complete repossession When seller takes back the possession of complete goods.
Accounting treatment in this case is as follows:
Books of Purchaser
1. All entries, except the entry for payment, are passed as usual up to the date of
default.
2. Buyer closes the account of seller by debiting his account. The same amount will be
credited to asset account.
3. Any balance left in asset account is closed by transferring to profit and loss account.
Books of Seller
1. All entries, except the entry for payment, are passed as usual up to the date of
default.
2. Seller closes purchaser’s account by crediting his account (by the amount credit given)
and debiting goods returned account (a new account).
3. Goods returned account, as opened, is further debited with expenses incurred on repair
of the goods and credited with actual resale price. Any balance in this account, being
profit or loss on resale, is transferred to profit and loss account.
Illustration 4 :
X purchased a truck for Rs. 2,80,000, payment to be made Rs. 91,000 down and 3 installments
of Rs. 76,000 each at the end of each year. Rate of interest is charged at 10% p.a. Buyer depreciates
assets at 15% p.a. on written down value method.
Because of financial difficulties, X, after having paid down payment and first installment to the
end of 1st year could not pay second installment and seller took possession of the truck. Seller,
after spending Rs. 9,200 on repairs of the asset sold for Rs. 150,000.
Solution :
Calculation of Interest
Particulars Total Cash Installment Interest Paid towards
Price Paid @ Paid Cash Price
10% Int (Installment-Interest)
Rs Rs Rs Rs
280,000
Down Payment 91,000 91,000 0 91,000
189,000
End of 1st year 57,100 76,000 18,900 57,100
131,900
End of 2nd Year 62,810 76,000 13,190 62,810
69,090
End of 3rd Year 69,090 76,000 6,910 69,090
Total 0 319,000 39,000 280,000
Financial Accounting 87
ROYALTY AND HIRE PURCHASE
In the Books of X
Car Account
Dr Cr
Date Particulars Amount Date Particulars Amount
Rs Rs
1st Year To Vendor 280,000 By Depreciation 42,000
By Bal c/d 238,000
280,000 280,000
Vendors Account
Dr Cr
298,900 298,900
2nd Year To Asset A/C
(Default- Assets
Taken Over 145,090 By Bal b/d 131,900
Interest 13,190
145,090 145,090
88 Financial Accounting
In the Books of Vendor
X Account
Dr Cr
Date Particulars Am ount Date Particulars Amount
Rs Rs
1st Year
To Sales 280,000 By Bank (Down) 91,000
To Interest 18,900 By Bank(Installment) 76,000
By Bal c/d 131,900
298,900 298,900
2nd
Year
By Goods Repossessed
To Bal b/d 131,900 A/C 145,090
To Interest 13,190
145,090 145,090
Goods Repossessed Account
Dr Cr
Date Particulars Amount Date Particulars Am ount
Rs Rs
To X A/c
(Purchaser) 145,090 By Bank (Sales) 150,000
Bank
To (Repairing By P/L A/c
Charge) 9,200 (Bal Figure) 4,290
154,290 154,290
(b) Partial Repossession - When seller takes possession of only part of the total asset
sold to buyer. In this case accounting entries in the books of both the parties are similar
to those done in the first case. The additional precautions to be taken are as follows:
(i) Both buyer and seller do not close seller’s and buyer’s account in their respective
books. The entry is passed with the agreed value of the asset which is taken away by
the seller. The basis for finding out the value of asset taken away is given in the question.
(ii) The buyer finds out the value of asset still left with him using the normal rate of
depreciation. He keeps the asset account open. This account shows the balance of that
asset which is left to him by the seller. (iii) After crediting the asset account
(in buyer’s books) with the value of asset taken away by the seller (with such
value as agreed upon) and after keeping the balance of the asset left [normal
value as calculated in (ii) above], the difference shown by the asset account
represents either profit or loss on default. This difference is transferred to profit and
loss account.
Financial Accounting 89
ROYALTY AND HIRE PURCHASE
Illustration 5 :
Z Ltd. purchased seven trucks on hire purchase on 1st July, 2005. The cash purchase price
of each truck was Rs 1,00,000. The company has to pay 20% of the cash purchase price at
the time of delivery and the balance in five half yearly instalment starting from 31st December,
2005 with interest at 5% per annum at half yearly rest. On the Company's failure to pay the
instalment due on 30th June 2006, it was agreed that the Company would return 3 trucks to
the vender and the remaining four would be retained. The vendor agreed to allow him a
credit for the amount paid against these 3 trucks less 25%. Show the relevant Accounts in
the books of the purchase and vendor assuming the books are closed in June every year and
depreciation @ 20% p.a. is charged on Trucks. Vendor after spending Rs. 2,000 on repairs
sold away all the three trucks for Rs. 80,000.
Solution :
In Books of Hire-Purchaser
Dr. Trucks Account Cr.
90 Financial Accounting
Working Notes :
(i) Credit allowed by Vendor against 3 trucks Rs
Total amount of principal paid against 7 trucks
(Rs 1,40,000 + Rs 1,12,000) 2,52,000
Total amount of principal paid against 3 trucks (Rs 2,52,000 x 3/7) 1,08,000
Credit allowed by Vendor (Rs 1,08,000 - 25% of Rs 1,08,000) 81,000
(ii) Loss on surrender of 3 trucks
Book value of 3 turcks surrendered[(Rs 1,00,000 x 3) less 20% of Rs 3,00,000]2,40,000
Less : Credit allowed by Vendor against these 3 Trucks 81,000
Loss on surrender of 3 Trucks 1,59,000
30.6.06 To Banerjee & Co. 81,000 30.6.06 By Bank A/c (Sales) 80,000
30.6.06 To Cash A/c 2,000 30.6.06 By Profit & Loss A/c
(expenses) (Loss on Sale) 3,000
83,000 83,000
Illustration 6 :
HT Ltd. purchased three electric motors costing Rs. 10,000 each from KM Ltd on 1st January,
2004 on the hire purchase system. The terms were : Payment on delivery Rs 2,500 for each
motor and balance of the principal amount by 3 equal instalments plus interest at 15% per
annum to be paid at the end of each year. HT. Ltd writes off 25% depreciation each year on the
diminishing balance method. HT. Ltd failed to pay the last instalment. KM. Ltd repossessed
two motors adjusting values against the amount due. The repossession was done on 1st
January, 2007 on the basis of 40% depreciation on the diminshing balance method. You are
required to: (a) Write up the ledger accounts in the books of H.T. Ltd showing the above
transactions upto 1.1.2007, and (b) Show the disclosure of the balance arising from the
above in the Balance Sheet of H.T. Ltd an on 31st December 2006.
Financial Accounting 91
ROYALTY AND HIRE PURCHASE
92 Financial Accounting
Working Notes :
(i) Agreed Value of two motors repossessed on 01.01.2007 at 40% depreciation
Illustration 7 :
On 1.1.2004, B & Co. bought 5 computers from Chirag Computers on hire-purchase. The
cash price of each computer was Rs 20,000. It was agreed Rs 30,000 each at the end of each
year. The Vendor charges interest @ 10% p.a. The buyer depreciates computers at 20% p.a.
on the diminishing balance method.
B & Co. paid cash down and two instalments but failed to pay the last instalment.
Consequently, the Computers Co. repossessed three sets, leaving two sets with the buyer and
adjusting the value of 3 sets against the amount due. The sets repossessed were valued on the
basis of 30% depreciation p.a. on the written down value. The sets repossessed were sold by
the Chirag Computers for Rs 30,000 after necessary rapairs amounting to Rs 5,000 on 30th June
2007.
Required : Open the necessary ledger account in the books of both the parties.
Financial Accounting 93
ROYALTY AND HIRE PURCHASE
Solution :
In the Books of B & Co.
Dr. Computers Account Cr.
94 Financial Accounting
Rs
Cost (Cash Price) of 3 Computers 60,000
Less : Depreciation @ 30% p.a. for 3 years [Rs 18,000 + Rs 12,600 +
Rs 8,820] 39,420
20,580
(iv) Book Value of 3 Computers Repossesed on the basis of depreciation
@ 20% p.a
Cost (Cash Price) of 3 Computers 60,000
Less : Depreciation @ 20% WDV for 3 years [Rs 12,000 + Rs 9,600 +
Rs 7,680] 29,280
30,720
(v) Loss on Surrender = Book value – Agreed Value = Rs 30,720 – Rs 20,580 = Rs.10,140
Financial Accounting 95
ROYALTY AND HIRE PURCHASE
For items of ‘B’ category, i.e.. of small value such as cycles, radios, fans etc. sold on hire-pur-
chase system it would be impractical for the seller to calculate the interest involved in each
installment (as discussed earlier). It involves huge amount of clerical work. It is impossible to
distinguish the gross profit and interest for each and every contract. Therefore on grounds of
expediency no distinction is made between one contract and another on the one hand and the
gross profit element and interest on the other. It is the combined figure of gross profit and
interest for all contracts that is apportioned for each accounting period on an appropriate ba-
sis.
(a) Book-keeping procedures. Maintain a subsidiary book and record therein the name of
article, selling price of article, number of installments to be paid etc. provide many small
columns for recording the receipt of installments as and when received.
(b) At the end of the financial year, collect the following statistics from the subsidiary records;
(i) Cost price of total goods paid to various customers during the year;
(iii) Total installments due but not paid by customers. This happens only when there is
delay an the part of customers to make payments; and
(iv) Cost price of unpaid and not due installments; because at the end of the year, there
are always some customers from whom installments do not become due. The cost
price calculated from the amount of installments unpaid and not due, gives us the
cost price of the goods in the hands of the customers. This item is known as ‘Stock
out on hire purchase system at cost price’. The value of this item can be ascertained
in three ways provided the gross profit margin is uniform.
There are two ways in which the Hire-Purchase Trading Account may be prepared and bath
methods produce the same profit figures and same value of “stock out on hire at cost” far
Balance Sheet purposes. The methods are (A) Stock on Hire Method and (B) Provision for
stock or Provision for Unrealized Profit method.(H.P.Adjustment )
Under this method the following accounting entries are made resulting in the preparation of
Hire- Purchase Trading Account and the ascertainment of the Profit.
96 Financial Accounting
Transaction DR CR
(1) Goods sold on hire-purchase Hire-Purchase Debtors Hire-Purchase Sales
at Hire-purchase selling price
(2) (i) Deposits and installments Bank Hire-Purchase Debtors
received from customers. (Individual A/c)
(ii) -do- (Total) Hire-Purchase Sales Hire-Purchase Trading A/ c
(3) Cost price of goods sold Hire-Purchase Trading Purchases/ Trading
on hire-purchase
(4) (i) Installment due and unpaid Installment Due Hire- Purchase Debtors
(ii) -do- (Total) Hire-Purchase sales Hire-Purchase Trading A/c
(5) Hire-purchase Trading profit Hire-Purchase Trading General Profit and Loss
Notes:
(1) The balance in the Hire-purchase Debtors Account represents amount not due and not
paid on hire-purchase contracts.
(2) The balance in the Hire-purchase Sales amount will be equal to Hire-purchase Debtors. The
nature of the balances is however, opposite. Therefore, these balances need not be shown
in the balance sheet.
(B) Provision for Unrealized Profit Method
Under this method provision is made for the unrealized profit included in hire-purchase
debtors not yet due to reduce them to the cost basis. Because of this the method is named
as “Provision for unrealized profit method”
The accounting entries are:
Transaction DR CR
(1) Goods sold on hire-purchase Hire-purchase debtors Hire-Purchase sales
at Hire-purchase selling price
(2) Deposits and installments Bank Hire-Purchase debtors
received from customers.
(3) Installment due and unpaid. Installment Due Hire- Purchase Debtors
(4) Balance in hire-purchase sales Hire-Purchase Sales Hire-Purchase Trading
(5) Cost price of goods sold on Hire-Purchase Trading Purchases/ Trading
hire-purchase.
(6) Provision for unrealized profit. Hire-Purchase Trading H.P. Adjustment A/c
(7) Hire-purchase Trading profit Hire-Purchase Trading General Profit and Loss
Financial Accounting 97
ROYALTY AND HIRE PURCHASE
Notes:
(1) Formula for Provision for unrealized profit is:-
Installments not yet due / (Total Hire - purchase sales) x Total profit
(2) In the Balance Sheet balance of Hire-purchase debtors (not yet due) minus the provision
for unrealized profit is shown under ‘Current assets’
(C) Debtors System
Hire- Purchase Trading Account prepared under this system is similar to branch account
prepared under the debtors system. Just as branch account gives the profit made by the branch,
Hire-Purchase Trading Account also discloses the profit made through hire sales of items of
small value. The logic of preparing the H.P. Trading account and the Journal entries made are
similar to the preparation of branch account under the debtors system.
Meaning of some of the terms used in this system.
(a) Hire Purchase Debtors: (Installments due and unpaid): These are installments due in the
accounting period, but not paid by the buyers of goods.
(b) Hire-Purchase Stock. This represents instalments from buyers are not due. These
installments are payable in subsequent accounting period. This can be valued at selling
or cost price . Other names to this item are ‘Stock out on Hire’, ‘Stock with Customers’
and ‘Installments not due’.
(c) Shop Stock account. This represents the cost of goods with the Hire Vendor which have
not yet been sold to Hire Purchasers.
(d) Purchases. This item represents the cost of goods purchased during the accounting
period.
(e) Installments paid. This represents installments received during the accounting period
and may relate to current or earlier periods.
The Accounting entries under this method are:
Transaction DR CR
(1) Cost price of goods sold on Hire-Purchase Trading Goods sold on H.P
hire-purchase
(2) Installments received from Bank Hire-Purchase Trading
customers
(3) Installment due and unpaid H.P. Debtors A/c Hire-Purchase Trading
(at cost)
(4) Goods with customers on Hire-Purchase Stock Hire-Purchase Trading
hire at close
(5) Hire-purchase Trading profit Hire-Purchase Trading General Profit and Loss
98 Financial Accounting
Repossessed Goods
The seller can repossess the goods from the buyer defaulting to make payments due under the
contract. The seller is not bound to return any deposits and installments received in respect of
such goods. Such goods are usually repaired or reconditioned and then sold. There are two
ways of dealing with such repossessed goods. First, they can be dealt with in the framework of
HP Trading account. Secondly the figures relating to such repossessed goods cal) be segre-
gated and shown separately so that HP Trading account shows the normal gross profit.
First Method:
Under this method the installments due in respect of such repossessed goods are transferred
to general profit and loss account, the entry being
General Profit and loss account Dr
To Installments due account
This entry is made at Hire-purchase price and represents abnormal loss written off to profit
and loss account. Goods repossessed are valued at cost or market price whichever is less and
are included in the stock and shown on the credit side of HP Trading account, the entry being:
Goods Repossessed account Dr
To Hire-Purchase Trading account
(D) Stock and debtors system
Under this system the following accounts are to be opened.
1) Hire-purchase stock account.
2) Shop stock account
3) Goods on hire purchase account
4) Hire purchase adjustment account.
And the treatments are like below.
Transaction DR CR
1. Cost price of goods available Shop Stock Purchase
for hire-purchase sale.
2. Goods sold on hire Purchase a) Hire-purchase Stock 1) Goods sold on hire Pur
during the year b) Goods sold on hire b) (i) Shop Stock
Purchase b(ii) H.P.Adjustment
Financial Accounting 99
ROYALTY AND HIRE PURCHASE
Illustration 8 : S Ltd has a hire purchase department. Goods are sold on hire purchase at
cost plus 50%. The following information is provided for the year ending on 31st March
2008
01.04.2007 31.03.2008
Stock out with Hire Purchase Customers (Rs.) 9,000 ?
Stock at shop (Rs.) 18,000 20,000
Instalment Due (Customers still Paying)(Rs.) 5,000 9,000
Required : Prepare Hire Purchase Trading Account in each of the following alternative cases:
Case (a) If Cash received from hire purchasers amounted to Rs 60,000 and Goods
purchased during the year amounted to Rs 60,000.
Case (b) If Cash received from hire purchasers amounted to Rs 60,000 and Goods
purchased during the year amounted to Rs 60,000. Goods repossessed (Instalments
due Rs 2000) valued at Rs 500 which have not been included in the Stock at shop at
the end.
Case (c) If Cash received from hire purchasers amounted to Rs 60,000 and Goods
purchased during the year amounted to Rs 60,000. Goods repossessed (Instalments
unpaid Rs 2,000 of which Rs 1,400 were overdue) valued at Rs 500 which have not
been included in the Stock at shop at the end.
Solution : Case (a)
Dr. Hire Purchase Trading Account Cr.
Particulars Rs Particulars Rs
To Opening Balances: By Hire Purchase Stock Reserve
Hire Purchase Stock 9,000 [Rs 9,000 x 50/150] 3,000
Hire Purchase Debtors 5,000 By Bank A/c 60,000
To Goods Sold on Hire 87,000 By Goods Sold on Hire 29,000
Purchase Purchase A/c
To Hire Purchase Stock 10,667 [Rs 87,000 x 50/150]
Reserve A/c
[Rs 32,000 x 50/150] By Closing Balances :
To Profit t/f to General Hire Purchase Stock 32,000
P & L A/c 21,333 Hire Purchase Debtors 9,000
1,33,000 1,33,000
Working Notes
Dr. (i) Stop Stock Account Cr.
Particulars Rs Particulars Rs
Particulars Rs Particulars Rs
Particulars Rs Particulars Rs
Particulars Rs Particulars Rs
Case (c)
Dr. Hire Purchase Trading Account Cr.
Particulars Rs Particulars Rs
Working Notes
Dr. (i) Shop Stock Account Cr.
Particulars Rs Particulars Rs
Particulars Rs Particulars Rs
Particulars Rs Particulars Rs
Particulars Rs Particulars Rs
Working Notes
Dr. (i) Shop Stock Account Cr.
Particulars Rs Particulars Rs
Particulars Rs Particulars Rs
Particulars Rs Particulars Rs
Working Note :
Calculation of the value of Goods Repossossed Value of Goods Repossessed
Cost Price
= ----------------- X Unpaid Amount (whether due or not)
H.P. Price
4,000
= ----------------- X 3,500 = 2,333 /-
6,000
Illustration 10 : Goods amounting to Rs 6,23,988 at hire purchase price were sold on hire
purchase system. The hire-vendor normally sells goods at retail price showing a gross profit
of 30% on that price. But when goods are sold on hire-purchase, he adds 5 per cent to retail
price to cover additional risk. During the year goods costing Rs 42,000 were repossessed for
non-receipt of any payment on them. These goods were valued at cost on 31 March. Cash
received from customers amounted to Rs 2,52,000.
Required : Prepare Hire Purchse Trading Account for the year ending on 31st March, 2008,
so that profits to be taken into account is such proportion of the profits as instalments due
bear to the total goods sold on hire-purchase.
Particulars Rs Particulars Rs
Working Notes
Dr. (i) Memorandum Hire Purchase Stock Account Cr.
Particulars Rs Particulars Rs
6,23,988 6,23,988
Dr. (ii) Memorandum Hire Purchase Debtors Account Cr.
Particulars Rs Particulars Rs
Note: Retail Price of the goods= 100 + 5 = 105. So, Loading is calculated as 35/105.
Case(a)
Dr. (i) Shop Stock Account Cr.
Particulars Rs Particulars Rs
Particulars Rs Particulars Rs
Particulars Rs Particulars Rs
Particulars Rs Particulars Rs
Particulars Rs Particulars Rs
To Hire Purchase Stock Reserve A/c 10,667 By Hire Purchase Stock Reserve A/c
[32,000 x 50/150] [ 9,000 x 50/150] 3,000
To Profit t/f to Profit & Loss A/c 21,333 By Goods Sold Hire Purchase A/c
[87,000 x 50/150] 29,000
32,000 32,000
To Hire Purchase Stock Reserve A/c 10,000 By Hire Purchase Stock Reserve A/c
[30,000x50/150] [ 9,000 x 50/150] 3,000
To Goods on Repossessed A/c 1,500 By Goods Sold on Hire Purchase A/c
[Loss on Repossession] [87,000 x 50/150] 29,000
[2,000 – Rs 500]
To Profit t/f to Profit & Loss A/c 20,500
32,000 32,000
Case (c)
Dr. (i) Shop Stock Account Cr.
Particulars Rs Particulars Rs
To Balance b/d 18,000 By Goods Sold on
To Purchases (b.f.) 60,000 Hire Purchase A/c (b.f.) 58,000
By Balance c/d 20,000
[Excluding Goods Repossessed]
78,000 78,000
To Shop Stock A/c 58,000 By Hire Purchase Stock A/c (b.f.) 87,000
To Hire Purchase Adjustment A/c 29,000
87,000 87,000
To Hire Purchase Stock Reserve A/c 10,000 By Hire Purchase Stock Reserve A/c
[30,000 x 50/150] [9,000 x 50/150] 3,000
To Goods on Repossessed A/c 1,500 By Goods Sold on Hire Purchase A/c
[Loss on Repossession] [87,000 x 50/150] 29,000
To Profit t/f to Profit & Loss A/c 20,500
32,000 32,000
Illustration 12 :Capital Electronics sold a colour TV set to X on hire purchase system on 1.1.2008 for Rs
18,400 X paid Rs 4,000 on the same date to receive the delivery of the TV set and agreed to pay the balance
in 12 equal monthly instalments, each instalment becoming due on the last date of each month. X paid six
instalments in time but failed to pay other instalments. In September 2008 (before the monthly instalment
has become due) the seller repossessed the TV set. The repossessed set was valued at Rs 7,000.
Required : Show the necessary ledger accounts (on the basis of Stock and Debtors system) in the books of
Tee Vee House.
Solution :
Dr. (i) Hire Purchase Stock Account Cr.
Particulars Rs Particulars Rs
To Hire Purchase Stock a/c 4,800 By Hire Purchase Adjustment A/c 200
To Hire Purchase Debtors A/c 2,400 By Balance c/d 7,000
7,200 7,200
Dr. (iv) Hire Purchase Adjustment Account(extracts) Cr.
Particulars Rs Particulars Rs
To Hire Purchase Stock A/c 15,000 By Hire Purchse Adjustment A/c 4,500
To Hire Purchased Debtors A/c 9,000 By Balance c/d 19,500
24,000 24,000
To Balance b/d 19,500 By Bank A/c (Sale proceeds) 30,000
To Bank A/c (Expenses) 6,000
To Hire Purchase Adjustment A/c 4,500
30,000 30,000
To Hire Purchase Stock A/c 15,000 By Hire Purchse Adjustment A/c 6,000
To Hire Purchased Debtors A/c 9,000 By Balance c/d 18,000
24,000 24,000
To Balance b/d 18,000 By Bank A/c (Sale proceeds) 30,000
To Bank A/c (Expenses) 6,000
To Hire Purchase Adjustment A/c 6,000
30,000 30,000
Illustration 14 : The hire purchases depaetment of Zapak Ltd provides you the following
information for the year ending on 30th September 2008 :
Purchase cost per unit Rs 3,000
Cash sales price per unit Rs 4,000
Cash down payment per unit Rs 400
Monthly payment per unit Rs 350
Number of instalments per unit 12
Number of units sold on hire purchase basis 120
Number of instalments collected 420
Nuber of instalments due but not yet collected 58
Required : Calculate the following :
(a) Number of instalments fallen due during the year, (b) Number of instalments not yet
due on 30. 9. 2008, (c) Amount of instalment not yet due, (d) Amount of istalment due but
not yet collected, (e) Amount fallen due during the year, (f) Cash collected during the year,
(g) Hire Purchase price per unit, (h) Total hire purchase price of units sold, (i) Total cost
price of units sold on hire purchase, (j) % of profit margin on H.P. Sales, (k) Profit included
in total hire purchases price, (l) Profit included in the amount of instalments not yet due, (m)
Gross Profit.
Also Prepare Hire Purchase Stock Account, Hire Purchases Debtors Account and Hire
Purchase Adjustment Acount.
Solution :
Step 1 Prepare the Analysis of No. of Instalments
Total No. of Instalments= No. of Units sold x Total No. of Instalments Payable
= 120 x 12 = 1440
Again, Total No. of instalments = Instalment Due + Instalments not Due
Where, Instalments Due= Instalments Received + Instalments not received= 420 + 58 =478
Down Payment Received = No. of units sold x Down Payment per unit
= 120 x Rs 400 = Rs 48,000
Instalments Receivable= 1,440 x Rs.350= Rs.5,04,000
Again, Instalments Due= Instalments due & received + Instalments due but not received
To Hire Purchase Stock Reserve A/c By Goods Sold on Hire Purchase A/c
[3,36,700 x 1,600/4,600] 1,17,113 [5,52,,000 x 1,600/4,600] 1,92,000
To Profit t/f to Profit & Loss A/c 74,887
1,92,000 1,92,000