Hire Purchase Question

7/25/2019 Hire Purchase Question

1/90

Question No. 1

Slide No. 1


2/90

No of units sold 10

Cash Price/- unit 130

HP Price/- unit 150

Cash down/- unit 30

No of installments 12 equal monthly

`

Slide No. 2


3/90

Installments fall due at the end of every month starting from31.1.11. Installments were due till 31.7.11 but last 2 installmentswere not paid. From the above information, find out

(a) Goods sent on Hire Purchase

(b) Interest

(c) Per installment value

(d) Cash Collection

(e) Hire Purchase Debtors

(f) Hire Purchase Sales

(g) Hire Purchase Stock

Slide No. 3


4/90

Solution:

(a) Goods sent on Hire Purchase = No. of Units sold x HirePurchase price / Unit

= 10 x 150 = 1,500

(b) Interest = Hire Purchase price / UnitCash Price / Unit

= 150 - 130 = ` 20 / Unit

Total Interest =10 x 20 = ` 200

Slide No. 4


5/90

(c)

Hire Purchase Price (Per Unit) - 150

Cash down - 30 Instalment - 120

No of installments possible = 12

Per instalment value = 120/ 12 = ` 10/ unit

Per instalment value

Slide No. 5


6/90

(d) Cash Collection = Cash down + Instalments collected

= 300 + (5 x 10) x 10)

= 300 + 500 = ` 800

(e)Hire Purchase

Debtors= Instalments due but not paid

= 2 (Months) x 10 (Per Unit) x 10 (Units)

= ` 200

Slide No. 6


7/90

(f)Hire Purchase

Sales= Cash down + Instalments fallen due

= 300 + (7 x 10) x 10)

= 300 + 700 = ` 1000

(g)Hire Purchase

Stock= Instalments not fallen due

= (5 x 10) x 10 = ` 500

Slide No. 7


8/90

Hire Purchase Price 1,500

Cash down - 300 Instalment s 1,200

Summary:

Due 700

Collected - 500 Not Collected 200

Not Due 500

Slide No. 8


9/90

xxxxxx

xxxTo Stock Reserve By Balance c/d

xxxTo Cash (Expenses, if any) xxxBy P & L A/c (Loss)

xxxBy Cash (Collection)

xxxTo Goods sent on HirePurchase (Hire Purchase Price)

xxxHire Purchase Debtors

xxxBy Goods Repossessed(Agreed Value)

xxxHire Purchase Stock

xxxBy Stock ReservexxxTo Balance b/d

Hire Purchase Trading A/c

xxxBy Goods sent on Hire

Purchase (Loading)

xxxHire Purchase Debtors

xxxHire Purchase StockxxxTo Profit & Loss A/c (Profit)

Slide No. 9


10/90

Question No. 2

Slide No. 10


11/90

From the following details, set out the Hire Purchase Account inthe books of a trader who sells a number of articles ofcomparatively small value daily on the hire purchase system,showing his profit on this department of the business for the year

ended Dec. 31st, 2010. For the purpose of charging his hirepurchase customers he adds 60% to the cost of the goods.

2,100Cash received from hire purchase customers at selling price

6,534Sale of hire purchase goods during the year at selling price31/12/10

1,620Stock in customers hands at selling price01/01/10

5,674Stock in customers hands at selling price

`

Slide No. 11


12/90

100

Solution:

Cost

60

Working Note 1:

Markup

160Hire Purchase Price

60/100 (or) 3/5Markup on cost =

60/160 = 3/8Markup on Hire Purchase Price =

Slide No. 12


13/90

(1)

(3)

Check List

(a) Opening Stock Reserve

Opening Balance (Only Hire Purchase Stock, ShopStock and Hire Purchase Debtors)

Goods sent on Hire Purchase (Hire Purchase Price,Split between cost and markup between shop stock

and HP Adjustment)

(2)Closing Balance (Only Hire Purchase Stock, Shop Stockand Hire Purchase Debtors)

(4) Goods repossessed (Agreed Value)

(5) Cash expenses (if any)

(6) Cash collection

(7) Adjustments

(b) Closing Stock Reserve

Slide No. 13


14/90

Stock and Debtors System 4 Ledger A/cs

(1) Hire Purchase Stock

(2) Hire Purchase Debtors

(3) Hire Purchase Adjustment

(4) Shop stock (Cost)

Slide No. 14


15/90

Stock and Debtors System 6 Ledger A/cs

(1) Hire Purchase Stock

(2) Hire Purchase Debtors

(3) Hire Purchase Adjustment

(4) Hire Purchase Profit and Loss A/c

(5) Shop stock (Cost)

(6) Goods repossessed

Slide No. 15


16/90

Journal Entries:

(1) Goods sent on Hire Purchase

Dr.Hire Purchase Stock A/c

To Shop Stock A/c (Cost) xxx

To Hire Purchase AdjustmentA/c (Loading) xxx

xxx

Slide No. 16


17/90

(2) Hire Purchase Sales: When installments are falling due

Dr.Hire Purchase Debtors A/c

To Hire Purchase Stock A/c xxx

(3) When Cash is Collected

Dr.Cash A/c

To Hire Purchase Debtors A/c xxx

xxx

xxx

Slide No. 17


18/90

xxxxxx

xxxOpening Stock(Instalments not fallen due)

xxxSales(Installments fallen due)

xxxGoods repossessedxxxGoods sent on Hire Purchase(During the current year)

xxxClosing Balance(Installments not fallen dueduring current year)

Dr. Hire Purchase Stock A/c Cr.

Slide No. 18


19/90

xxxxxx

xxxOpening Balance(Installments due but notpaid during last year)

xxxCash collection(Current year)

xxxGoods repossessedxxxSales(Installments fallen dueduring current year)

xxxClosing Balance(Installments due but notpaid during current year)

Dr. Hire Purchase Debtors A/c Cr.

Slide No. 19


20/90

xxxxxx

xxxOpening Stock xxxCost of (Cash / Credit) sales

xxxGoods sent on Hire PurchasexxxPurchases

xxxClosing Stock

Dr. Shop Stock (Cost) A/c Cr.

= Sales x Gross Profit Ratio

Under Single Entry (Cross Verification)

Gross Profit

Slide No. 20


21/90

Shop Stock A/c

4,0844,084

4,084By Hire Purchase Stock A/c

Cr.Dr.

Under Stock and Debtors System

Hire Purchase Stock A/c

8,1548,154

2,450To Hire Purchase Adj. A/c

4,084To Shop Stock A/c

1,620To Balance b/d.

Cr.Dr.

5,674By Balance c/d

2,480By Hire Purchase Debtors A/c

Hire Purchase Debtors A/c

380By Balance c/d.

2,4802,480

Cr.Dr.

2,480To Hire Purchase Stock A/c 2,100By Cash A/c

Hire Purchase Adjustment A/c

To Hire Purchase Profit &Loss A/c

By Hire Purchase Stock A/c 2,450

3,058

930

3,058

To Balance c/d (5,674 x3/8)

2,128

By Balance c/d 608

Cr.Dr.

4,084To Purchase A/c

Hire Purchase Profit and Loss A/c

930930

930By Profit and Loss A/c

Cr.Dr.

930To Profit and Loss A/c

Slide No. 21


22/90

11,21211,212

930To Profit & Loss A/c (Profit)

By Balance c/d2,128To Stock Reserve

6,534To Goods sent on Hire

Purchase 2,100By Cash

1,620Hire Purchase Stock

608

By Stock Reserve

(1,620 x 3/8)To Balance b/d


2,450By Goods sent on HirePurchase(6,534 x 3/8)

6,054Hire Purchase Debtors

Hire Purchase Stock

380

5,674

Slide No. 22


23/90


Under Single Entry (Cross Verification)

Gross Profit

= 2,480 x 3/8 = 930

Slide No. 23


24/90

Question No. 3

Slide No. 24


25/90

Y Ltd. sells products on hire purchase terms, the price being cost plus 33 1/3%.From the following particulars for 2010, prepare Hire Purchase Stock Account,

Shop Stock Account, Hire Purchase Debtors Account and Hire PurchaseAdjustment Account:

9,000Installment due (Customers still paying)

15,000Stock in hand, at Shop

31/12/10

1,20,000Stock out on hire at Hire Purchase Price01/01/10

1,38,000Stock out on hire at Hire Purchase Price

`

21,000Stock in hand, at Shop

15,000Installments due (Customers still paying)

2,40,000Cash received during the year

Slide No. 25


26/90

Solution:

Cost

Markup

Markup on cost

Markup on Selling Price

Selling Price

=

=

Slide No. 26


27/90

2,19,0002,19,000

21,000By Balance c/d

Shop Stock A/c

Cr.Dr.


3,84,0003,84,000

2,64,000To HP Adj. A/c

To Shop Stock A/c

1,20,000To Balance b/d.


Cr.Dr.

1,38,000By Bal c/d

2,46,000By HP Drs.

15,000By Balance c/d.

2,55,0002,55,000


Cr.Dr.

9,000To Balance b/d 2,40,000By Cash A/c

To HP Profit & Loss A/c By Balance c/d(1,20,000 x 1/4) 30,000

96,000

61,500

96,000

To Balance c/d(1,38,000 x 1/4)

34,500 By HP Stock A/c 66,000


Cr.Dr.

2,04,000To Purchase A/c66,000

1,98,000

2,46,000To HP Stock A/c

1,98,000By HP Stock A/c15,000To Balance b/d.

Slide No. 27


28/90


Single Entry System (Cross Verification)

Gross Profit

= 2,46,000 x 1/4

= 61,500

Slide No. 28


29/90

4,89,0004,89,000

61,500To Profit & Loss A/c

By Balance c/d:

34,500To Stock Reserve A/c

(1,38,000 x )

2,64,000To Goods senton Hire Purchase

2,40,000By Cash A/c1,20,000Hire PurchaseStock

30,000By Stock Reserve(1,20,000 x 1/4)

To Balance b/d

66,000

By Goods sent on

Hire Purchase(2,64,000 x 1/4)

1,53,000 Hire PurchaseDebtors

Hire Purchase

Stock

15,000

1,38,000

9,000Hire PurchaseDebtors 1,29,000


Under Debtors System:

Slide No. 29


30/90

Question No. 4

Slide No. 30


31/90

Ram & Co. have hire purchase department. Goods are sold on hirepurchase at cost plus 50%. From the following particulars find out

the profit made by the hire purchase department:

5,000Instalments due, customers paying

18,000Stock at shop at cost

31/12/10

9,000Stock out with Hire Purchase Customer at selling price01/01/10

60,000Cash received from customers

`

500Goods repossessed (Instalments due ` 2,000) as valued

20,000Stock at shop at cost (excluding repossessed goods)

60,000Goods Purchased during the year

9,000Instalments due, customers paying

Slide No. 31


32/90

100

Solution:

Cost

50Markup

150(Hire Purchase price)

Selling Price


= 50/100 = 1/2Markup on Cost

= 50/150 =1/3Markup on Hire Purchase Price

Slide No. 32


33/90

78,00078,000


Shop Stock A/c

Cr.Dr.


96,00096,000

87,000To HP Adj. A/c

To Shop Stock A/c

9,000To Balance b/d.


Cr.Dr.


66,000By HP Drs. A/c

2,000BY Goodsrepossessed A/c

71,00071,000


Cr.Dr.

5,000To Balance b/d 60,000By Cash A/c

To HP Profit & Loss A/c By Balance b/d(9,000 x 1/3) 3,000

32,000

22,000

32,000

To Balance c/d(30,000 x 1/3)

10,000By HP Stock A/c 29,000


Cr.Dr.

60,000To Purchase A/c

22,00022,000

22,000By HP Adjust. A/c


Cr.Dr.

1,500To GoodsrepossessedA/c

29,000

58,000

66,000To HP Stock A/c

58,000By HP Stock A/c18,000To Balance b/d.

9,000By Balance c/d. 20,500To P & L A/c

2,0002,000

500By Balance c/d

Goods Repossessed A/c

Cr.Dr.

1,500By HP P & L A/c2,000To HP Debtors A/c

Slide No. 33


34/90

If installments have fallen due, but not paid andrepossession takes place.

(a)

Goods repossessed A/c(i) Dr.

To Hire Purchase Debtors A/c Cr.

(Unpaid amount)

Hire Purchase Profit & Loss A/c(ii) Dr.

To Goods repossessed A/c Cr.

(Loss on Repossession = Unpaid amount Agreed Value of Goods repossessed)

Slide No. 34


35/90


Single Entry System (Cross Verification)

Gross Profit

= 66,000 x 1/3 =22,000

= Gross Profit Loss onrepossession

Net Profit

= 22,000 1,500 = 20,500

Slide No. 35


36/90

1,31,5001,31,500

10,000To Stock Reserve A/c By Balance c/d:

20,500To Profit & Loss A/c

87,000To Goods sent on HirePurchase

60,000By Cash A/cHP Stock

3,000By Stock Reserve A/cTo Balance b/d

500

By Goods repossessed A/c

(Agreed Value)

39,000 HP Debtors

HP Stock

9,000

30,000

HP Debtors 14,000



29,000By Goods sent onHire Purchase

5,000

9,000

Slide No. 36


37/90

Question No. 5

Slide No. 37


38/90

3,00,000

From the following prepare Hire Purchase Trading Account of M/s.Calcutta Traders who sell goods on hire purchase basis at cost plus 25%.

Instalments not due on 31.12.09

8,00,000Instalments due and collected during 2010

50,000Instalments due but not collected during `10 including`10,000 for which goods were repossessed

3,70,000Instalments not due on 31.12.10 including `20,000 for whichgoods were repossessed

15,000Instalments collected on repossessed stock

M/s. Calcutta Traders valued repossessed stock at 60% of original cost.

Slide No. 38


39/90

100

Solution:

Cost

25Markup


25 / 100 = 1/4Markup on cost =

25/125 = 1/5Markup on Hire Purchase Price =

Slide No. 39

Working Note 2: Agreed Value


40/90

15,000

Working Note 2: Agreed Value

Installments due and collected on repossessedstock

10,000Installments due, but not collected onrepossessed stock

20,000Installments not due on repossessed stock

9,000Markup on above = 45,000 x 1/5 =

36,000Original cost of repossessed stock (45,000 9,000)=

21,600Agreed Value = (36,000x 60%)

45,000Hire purchase price of repossessed stock

Slide No. 40

4,400Loss =[Due + Not due Stock Reserve] - Value

10000 + 20000 4000 [20000x1/5] - 21600


41/90

If installment has not fallen due, but repossession takes place.

Goods repossessed A/c Dr.

Hire Purchase Adjustment A/c Dr.

To Hire Purchase Stock A/c 20000

Slide No. 41

16000

4000



42/90

7,36,0007,36,000

Shop Stock A/c

Cr.Dr.


12,20,00012,20,000


To Shop Stock A/c

3,00,000To Balance b/d.


Cr.Dr.

16,000By Goodsrepossessed A/c

8,50,,000By HP Drs. A/c

10,000BY Goods

repossessed A/c

8,50,0008,50,000


Cr.Dr.8,00,000By Cash A/c

To HP Profit & Loss A/c

By Balance b/d(3,00,000 x 1/5) 60,000

2,44,000

1,70,000

2,44,000

To Balance c/d(3,50,000 x 1/5)

70,000

By HP Stock A/c 1,84,000


Cr.Dr.

7,36,000To Purchase A/c

1,70,0001,70,000

1,70,000By HP Adjust. A/c


Cr.Dr.

4,400

To Goods

repossessedA/c

1,84,000

7,36,000


7,36,000By HP Stock A/c

40,000By Balance c/d. 1,65,600To P & L A/c

26,00026,000



Cr.Dr.


4,000By HP Adj. A/c

3,50,000By Bal. c/d

It is assumed that there is no opening balance of Debtors.

To HP Stock A/c 4,000


Slide No. 42


43/90


Cross Verification:

Gross Profit

= 8,50,000 x 1/5 =1,70,000

= Gross Profit Loss on RepossessionNet Profit

= 1,70,000 4,400 = 1,65,600

Slide No. 43


44/90

14,55,00014,55,600

1,65,600To Profit & Loss A/c

By Goods sent on Hire Purchase70,000To Stock Reserve A/c

9,20,000To Goods senton Hire Purchase

8,00,000By Cash A/cHire Purchase Stock

60,000By Stock ReserveTo Balance b/d

21,600By Goods repossessed A/c(Agreed Value)

3,90,000 Hire Purchase Debtors

Hire Purchase Stock

40,000

3,50,000



3,00,000

1,84,000

By Balance c/d:

Slide No. 44


45/90

Question No. 6

Slide No. 45


46/90

Model Construction

Home comforts Ltd., commenced business on January 1, 2010. The

business is to sell radio sets and radiograms both for cash and on hire-Purchase basis. Information about terms is given below:

ParticularsRadio Sets

(`)Radiograms

(`)

Cost 400 1,200

Cash down for hire-purchase

Monthly Installment

Number of installments

100 300

50 150

10 12

The company purchased goods costing `5,00,000 in all and made cashsales totalling `4,30,000. Stock on hand on 31st Dec. 2010 was valuedat `60,000. Hire-Purchase transactions were as follows:

Cash Price 500 1,500

Slide No. 46


47/90

InstalmentsCollected

Installmentsdue

(CustomersPaying)

Radio Sets 260 15

2 radiograms and 3 radio sets on which only four installments werecollected were repossessed and were valued at `1,600. This is notincluded in the figure of stock mentioned above. Prepare accounts to

show the profit or loss made by the company.

Radiograms 110 10

NumberSold

40

20

Slide No. 47


48/90

Solution:

Working Note 1: Markup

Radio Sets Radiograms

(A) Cost 400 1,200

(B) Hire Purchase Price

(i) Cash Down

(ii) Installments

(iii) Hire Purchase Price

100 300

500= (50 x 10) 1,800=150 x 12

600 2,100

(C) Markup (B A)

(D) Markup on Cost

(E) Markup on Hire Purchase Price

200 900

= (200/400) 3/4 = 900/1200

1/3 3/7

Slide No. 48


49/90

Working Note 2: Goods sent on Hire Purchase


(A) No. of units sold 40 20


(C) Goods sent on Hire Purchase (HP Price)

(D) Markup on above

(E) Goods sent on Hire Purchase (Cost)

24,000 42,000

8,000 18,000

16,000 24,000

600 2,100

(24,000x 1/3) (42,000 x 3/7)

Slide No. 49

40,000


50/90

Working Note 3: Cash collection (Cash Down + Installments collected)


(A) Cash down collection 4,000= (40 x 100) 6,000= (20 x 300)

(B) Installments collected

(C) Total cash collection 17,000 22,500

13,000= (260 x 50) 16,500= (110 x 150)

Slide No. 50

39,500


51/90

Working Note 4: Goods repossessed


(A) No. of Units repossessed 3 2

(B) Total possible installments forgoods repossessed

(C) Installment collected 12= (3 x 4) 8= (2 x 4)

30= (3 x 10) 24= (2 x 12)

3 Radio sets and 2 radiogram, on which 4 installment were collected andrepossessed. It is assumed that remaining installments were also due but notpaid and hence repossessed.

(D) Installments due but not paid 18 16

(E) Goods repossessed 900= (18 x 50) 2,400 =(16 x 150)

3,300= (2,400 + 900)

Slide No. 51


52/90

Closing Debtors (Installments due, but not paid)


Closing Debtors 750 =(15 x 50) 1,500 =(10 x 150)

Working Note 5:

Slide No. 52


53/90

18 16Due but not collectedRepossessed

293 136

Working Note 6:Closing Hire Purchase Stock (Installments not fallen due)


(A) Total possible Installments

(i) No. of units sold

(ii) Possible Installments per unit

(iii) Total possible Installments

(B) Installments fallen due

(i) Due & collected

(ii) Due but not collected

(iii)

40 20

10 12

400 240

260 110

15 10

Slide No. 53


54/90

Closing stock (at HP Price) (107 x 50) =5350 (104 x 150) =15,600(D) +

Stock Reserve (5,350 x 1/3) =1,783 (15,600 x 3/7)= 6,686

(C) Not fallen due 107=400-293 104=240-136

(E) +


Working Note 6:Closing Hire Purchase Stock (Installments not fallen due)

20,950

8,469

Slide No. 54

U d D bt S t


55/90

Under Debtors System


Dr.

To Goods sent on Hire Purchase

To Stock Reserve

By Cash A/c66,000

8,469

Cr.

39,500

90,300

By Balance c/d

90,300

To Profit & Loss A/c 15,831

By Goods sent on Hire Purchase 26,000

By Goods repossessed 1,600

Stock

Debtors 23,200

20,950

2,250

Slide No. 55


56/90

Single Entry (For Cross Verification)


(A) Cash Down 4,000 6,000

(B)No. of Installmentsfallen due

(C) Hire Purchase Sales 18,650 26,400

293 136

(D) Gross Profit 6,217 11,314

Cash Down+ Installments Fallen dueHire Purchase Sales

Installments fallen due (`) 14,650 20,400

Less: Loss on Repossession

Net Profit

(293 x 50) (136 x 150)

(18,650x1/3)

45,050

17,531

1,700

15,831

Slide No. 56

(26,400x3/7)



57/90

Shop Stock A/c

5,00,0005,00,000

4,00,000By Trading A/c(Cost of cash sales)

Cr.Dr.

y


66,00066,000

26,000To HP Adj. A/c

To Shop Stock A/c 40,000

Cr.Dr.


45,050By HP Drs. A/c


3,300BY Goodsrepossessed A/c

45,05045,050

Cr.Dr.

39,500By Cash A/c


26,000

17,531

26,000

To Balance c/d 8,469

By HP Stock A/c 26,000

Cr.Dr.

5,00,000To Purchase A/c


17,53117,531

17,531By HP Adjust. A/c

Cr.Dr.

1,700

To Goodsrepossessed A/c


40,000By HP Stock A/c

2,250By Balance c/d. 15,831To P & L A/c


3,3003,300

1,600By Balance c/d

Cr.Dr.



To P & L A/c

Slide No. 57


58/90

To Shop stock

To Gross Profit

By Sales4,00,000

30,000

Home Comfort Limited Trading A/c

Dr. Cr.

4,30,000

4,30,000 4,30,000

Home Comfort Limited Profit and Loss A/c

Dr. Cr.

To Net Profit By Gross Profit45,831 30,000

45,831 45,831

By HP Profit and Loss A/c 15,831

Slide No. 58


59/90

Question No. 7

Slide No. 59


60/90

Cost

Model Construction

The hire purchase department of B.G. Ltd. sells television sets androom coolers. This department was newly started in 2010. The

relevant information is as follows:

Television Set (`) Room Cooler (`)

6,300 2,400Cash down Payment

Monthly Installment

Number of installments

900 400

600 200

10 12

During the year, 100 television sets and 120 room coolers weresold on hire purchase basis.

5,400 2,000

Cash Price

Slide No. 60


61/90

Room Coolers

Two television sets on which 3 installment only could be collectedand 4 room coolers on which 5 installments had been collectedwere repossessed. These were valued at `10,000 after

reconditioning at a cost of `1,000, and were sold outright for`14,000.

Television sets

400 and 30

270 and 20

Other installments collected and those due (customer still paying)were respectively as follows:

Prepare Accounts on stocks and debtors system to reveal theprofit of the Department.

Slide No. 61

S l ti


62/90

Solution:

Working Note 1: Markup

TV RC

(A) Cost Price 5,400 2,000


(i) Cash Down

(ii) Installments Value

(iii) Hire Purchase Price

900 400

600 x 10= 6000 200 x 12=2400

6900 2800

(C) Markup (B A)

(D) Markup on Cost

(E) Markup on Hire Purchase Price

1500 800

(1,500/5,400)

2/5

5/23 2/7

5/18

2/5 (800/2000)

Slide No. 62


63/90

Goods sent on Hire Purchase = No. of units sold x HP Price / unit

TV RC

(A) No. of units sold


(C)Goods sent onHP (HP Price)

(D) Markup on above

(E)Goods sent on HirePurchase (Cost)

10,26,000

100 120

6,900 2,800

6,90,000 3,36,000

1,50,000 96,000

6,90,000 x 5/23 3,36,000 x 2/7

2,46,000

5,40,000 2,40,000 7,80,000

Working Note 2:

Slide No. 63


64/90

Working Note 3: Cash collection (Cash Down + Installments collected)

TV RC

(A) Cash Down (100 x 900) 90,000 48,000

(B) Installments collected

(C) cash collection 2,55,600 1,32,000

On Repossessed Stock

Other Installments

(2 x 3 x 600) 3,600

(270 x 600)1,62,000

(4 x 5 x 200) 4,000

(400 x 200) 80,000

3,87,600

Slide No. 64


65/90

Closing Hire Purchase Debtors = Instalments fallen due but not paid

TV RC

(A) No. of Installments due but not paid 20 30

(B) Closing Hire Purchase Debtors12,000

(20 x 600)6,000

(30 x 200)

18,000

Working Note 4:

Slide No. 65


66/90

Working Note 5: Goods repossessed

Note 2TVs on which 3 installments were collected and 4 RCs on which 5installments were collected were repossessed. It is assumed that remaining

installments had fallen due not paid and repossessed.

TV RC

(A) No. of Units repossessed

(B) Total possible installments for goodsrepossessed

(C) Installments Collected on above

(D) Installments due but not paid & repossessed

(E) Goods repossessed

2 4

20(2 x 10) 48(4 x 12)

6(2 x 3)

20(4 x 5)

14 28

8,400(14 x 600)

5,600(28 x 200)

14,000

Slide No. 66

Working Note 6: Closing Hire Purchase Stock (Installments not due)


67/90

Due but not collected andRepossessed

Instalments not due

Stock Reserve

Closing stock(at HP Price)

4,14,000(690 x 600)

1,92,400(962 x 200)(D)

14

30

310 478

90,000(4,14,000 x 5/23)

54,971(1,92,400 x 2/7)

Working Note 6: Closing Hire Purchase Stock (Installments not due)

TV RC

(A) Total possible Installments

(C) 690 962

(E)

(B) Installments due

(i)Due, collected &Repossessed

(ii) Due but not collected

(iii)

6(2 x 3)

20(5 x 4)

20

400

1000

(100x 10)

1,440

(120 x 12)

Others 270

28

6,06,400

1,44,971 Slide No. 67


68/90



Dr.

To Goods sent on HP

To Cash A/c

By Cash A/c (Instalments)10,26,000

1,000

Cr.

3,87,600

12,72,000

By Balance c/d

12,72,000

To Stock Reserve A/c 1,44,971

By Cash A/c (Sale ofrepossessed Goods)

14,000

By Goods sent on HP 2,46,600

Stock

Debtors 6,24,400

6,06,400

18,000

To Profit & Loss A/c 1,00,029

Slide No. 68

d Si l ( C ifi i )


69/90

Under Single Entry (For Cross Verification)

TV RC

(A) Cash Down 90,000 48,000

Cash Down +Installments fallen dueHire Purchase Sales

(B) No. of installments due 310 478

Installments due (`) 1,86,000 95,600

(310 x 600) (478 x 200)

(C) Hire Purchase Sales 2,76,000 1,43,600 4,19,600

(D) Gross Profit 60,000 41,029

(2,76,000 x 5/23)

1,01,029

(E) Add: Profit on re-sale 3,000

(F) Less: Loss on Repossession (4,000)

(G) Net Profit 1,00,029

Slide No. 69



70/90

Shop Stock A/c

7,80,0007,80,000

Cr.Dr.


10,26,00010,26,000


To Shop Stock A/c 7,80,000

Cr.Dr.

6,06,400By Balance c/d

4,19,600By HP Drs. A/c


14,000

BY Goods

repossessed A/c

4,19,6004,19,600

Cr.Dr.

3,87,600By Cash A/c


2,46,000

1,01,029

2,46,000

To Balance c/d

By HP Stock 2,46,000

Cr.Dr.

7,80,000To Purchase


1,04,0291,04,029

3,000

By Goods

repossessed A/c

Cr.Dr.

4,000

To Goods

repossessed A/c



18,000By Balance c/d. 1,00,029To P & L A/c


14,00014,000


Cr.Dr.

4,000By HP P & L A/c14,000To HP Debtors A/cTo HP P & L A/c

Slide No. 70

(4,14,000 x5/23)

1,44,971

90,000

54,971(1,92,400 x2/7)

1,01,029By HP Adjust.

By Sales A/c10,000To Balance b/d

1,000To Cash A/c

3,000To HP P & l A/c

14,00014,000

14,000


71/90

Question No. 9

Slide No. 71

Final Accounts with Hire Purchase


72/90

To Opening Stock

Venus Enterprises sells goods for cash and hire purchase. The rate of gross profits forhire purchase sales is 32 percent on cost, and cash sales are made at the hire purchaseprice as reduced by 1/11th. The Trading Account is constructed on the basis that fullcredit is taken on hire purchase deliveries as well as on the cash sales. The hire purchase

trading did not commence till 1st February, 2010 The Trading Account of the concern forthe year ended 31st December, 2010, was as follows:

` `

10,75,000 14,850

To Gross Profit 3,54,950 13,24,950

1,80,000

1,35,000

2,10,000 13,39,800

To Purchases

Slide No. 72

By H.P. Sales

By Cash Sales

By Closing Stock

Less Returns

16,39,950 16,39,950Instalments received during the year amounted to `7,96,950. Returns of `14,850represents unpaid instalments or re-possessed goods, which have been included inclosing stock at a valuation of `10,000. The original cost of re-possessed goods is`15,000. Ascertain the correct profit of the concern on hire purchase and general tradingby preparing Hire Purchase Trading Account, General Trading Account and GoodsRe-possessed Account.

Solution:


73/90

100

Solution:

Cost

32Markup



= 32/100 = 8/25Markup on Cost

= 32/132 =8/33Markup on Hire Purchase Price

Slide No. 73

Note: In the given problem, goods sent on Hire Purchase, i.e., HirePurchase delivery were treated as Sales. In case of Hire Purchase(vendor books), it will be treated as sales, only when Installments havefallen due.



74/90

12,85,00012,85,000

Shop Stock A/c

Cr.Dr.

13,39,80013,39,800

13,39,800To HP Adj. A/c

To Shop Stock A/c


Cr.Dr.

14,850By Goods

repossessed A/c

8,11,8008,11,800


Cr.Dr.

7,96,950By Cash A/c

To HP Profit & Loss A/c

3,24,800

1,96,800

3,24,800

To Balance c/d(5,28,000 x 8/33)

1,28,000



Cr.Dr.

2,10,000To Balance b/d

1,96,8001,96,800

1,96,800By HP Adjust. A/c


Cr.Dr.

4,850

To Goods

repossessedA/c

3,24,800

10,15,000



1,91,950To P & L A/c

14,85014,850



Cr.Dr.


8,11,800By HP Drs

5,28,000By Bal. c/d

Slide No. 74

10,75,000To Purchase A/c 1,45,000By Trading Costof Cash Sales

1,25,000By Balance c/d

Note: Installments collected during the year 7,96,950 i.e.,treated as total cash collection for the year.

Note: It is assumed that there is no closing HirePurchase Debtors.

General Trading A/c and Profit and Loss A/c


75/90

General Trading A/c and Profit and Loss A/c

Dr. Cr.

2,26,950 2,26,950

By Sales A/c 1,80,000To Shop Stock A/c

Slide No. 75

1,45,000

To Gross Profit 35,000

1,80,0001,80,000

By Gross Profit b/d 35,000To Net Profit 2,26,950

By Hire PurchaseProfit & Loss A/c

1,91,950


76/90

Question No. 10

Slide No. 76

In the Books of Vendor


77/90

From the following information extracted from the books of Easy FinanceP. Ltd., prepare an account for the year ended on 31.12.10 showing the profitin respect of hire Purchase business of the Company:

Slide No.77

1

2

3

30,000

50,000

40,00,000

Instalments due but not received as on 1.1.10

Instalments due but not received as on 31.12.10

Cash received during the year 2010 by way of H.P.

instalments

4 1,20,000Value of stock 'Out' on H.P. as at 1.1.10

5 (a)

(b)

20,00,000

24,00,000

Cost price of trucks 'Out' on H.P. as at 31.12.10

Total amount of instalments receivable in respectof 5 (a) above.

(c) 18,00,000Total amount of instalments received and due up to31.12.10 in respect of 5 (a) above


78/90

Slide No.78

6

7

40,00,000

4,25,000

Purchases of trucks during the year 2010

Sales of Trucks otherwise than on H.P.(at a profit of

6 % of cost)

9

10

40,000

80,000

Interest paid

Unsold trucks on hand on 31.12.10

8 2,00,000Body building charges in respect of some of thetrucks sold on H.P.

Solution:


79/90

Solution:

Working Note 1: [Reference points 5 (a) and 5 (b)]

Cost price of trucks Out on Hire Purchaseas at 31-12-2010

Total amount of installments receivable inrespect of above

Markup

20,00,000

24,00,000

4,00,000

Markup on Cost = 4/20 = 1/5

Markup on Hire Purchase = 4/24 = 1/6

Slide No. 79



80/90

42,30,00042,30,000

Shop Stock A/c

Cr.Dr.

46,20,00046,20,000

7,50,000To HP Adj.(45,00,000

x 1/6)

To Balance b/d


Cr.Dr.

6,00,000

By Balance c/d

(24,00,000 18,00,000)

[5 (b) 5 (c)]

40,20,000By HP Drs. A/c

50,000BY Balance c/d

40,50,00040,50,000


Cr.Dr.

40,00,000By Cash A/c

7,70,000

6,70,000

7,70,000

To Balance c/d

By Balance b/d 20,000


Cr.Dr.

2,30,000To Op. Stock A/c

4,55,0004,55,000

25,000By Gross Profit b/d

General Profit and Loss A/c

Cr.Dr.

4,55,000To Net Profit A/c

30,000To Balance b/d


(Cost of Cash sales)

4,25,0004,25,000

General Trading A/c

Cr.Dr.

4,25,000By Sales A/c4,00,000To Shop Stock A/c

To HP P & L A/c

Slide No. 80

(6,00,000 x 1/6)

37,50,000

45,00,000

1,20,000

To Shop Stock


1,00,000


(1,20,000 x 1/6)

4,00,000By Trading A/c


40,00,000To Purchases A/c

25,000To Gross Profit

4,30,000By HP P&L A/c

425000 x 6.25/106.25

670000-2L-40k



81/90

To Balance b/d:

Debtors

By Stock Reserve(1,20,000 x 1/6)

y


Dr. Cr.

20,000

54,20,000

By Balance c/d

54,20,000

To Goods sent on HP

By Cash A/c 40,00,000

By Goods sent on HP 7,50,000

Debtors

Stock 6,50,000

50,000

6,00,000

Stock

30,000

Slide No. 81

1,20,000 1,50,000

45,00,000

To Cash 2,40,000

To Profit & Loss A/c 4,30,000

1,00,000To Stock Reserve


82/90

Question No. 12

Slide No. 82

I t t S M th d


83/90

Interest Suspense Method

Kapil Dev Limited sells goods on Hire Purchase on the basis of

25% deposit balance being payable, with 20% interest onbalance after deducting deposit, only in 8 equal quarterlyinstallments on 31.03, 30.06, 30.09 & 31.12 each year. The firstinstallment is payable at the end of the quarter in which the saleis made. The company transfer 50%, 30% & 20% of the interestto Profit and Loss Account in the 1st, 2nd and 3rd yearrespectively.

Balances on 01.01.10

Hire Purchase Debtors

Hire Purchase Interest Suspense A/c

`

14,90,625

1,95,000

Slide No. 83


84/90

Hire Purchase Sales (exclusive of interest) which have evenlyoccurred over each of the 3 years are

2008

2009

2010

`

15,00,000

20,00,000

17,00,000

All dues are promptly collected. Draw out the following:

HP Debtors A/c

HP Interest Suspense A/c

I

II

Slide No. 84

Solution:


85/90

At the time of sales(A)

Hire Purchase Debtors A/c Dr. xxx

xxx

xxx

To Hire Purchase Sales A/c

To Hire Purchase Interest Suspense A/c

At the time of collection(B)

Cash A/c Dr. xxx

xxxTo Hire Purchase Debtors A/c

At the end of the year:(C)

Hire Purchase Interest Suspense A/c Dr. xxx

xxxTo Profit & Loss A/c

Slide No. 85


86/90

Working Note 1:

Year

31-3

30-6

30-9

31-12

1

4

3

2

1

10

2

4

4

4

4

16

3

0

1

2

3

6 32

10/32 16/32 6/32

Slide No. 86

Note:


87/90

Note:

Goods are sold on Hire Purchase on the basis that 25% is paid ascash down. Balance amount is paid along with interest in 8 equal

quarterly installments.

Sales have taken place evenly throughout the year

(1)

(2)

Working Note 2:

Deposit(Sales x 25%)

Year SalesInterest @

20%InstallmentBalance

3,75,0002008 15,00,000 2,25,000 13,50,00011,25,000

5,00,0002009 20,00,000 3,00,000 18,00,00015,00,000

4,25,0002010 17,00,000 2,55,000 15,30,00012,75,000

B = A x 25%A D=C x 20% E = C + DC = A - B

Slide No. 87


88/90

Working Note 3: Opening and Closing Debtors

Year Debtors as on 31-12-2010Installment Debtors as on 31-12-2009

2008 013,50,0002,53,125

[13,50,000 x 6/32]

2009 3,37,500[18,00,000 x 6/32]18,00,00012,37,500

[18,00,000 x 22/32]

201010,51,875

[15,30,000x 22/32]15,30,0000

13,89,37514,90,625

Slide No. 88


89/90

Working Note 4:

Year Interest Suspenseas on 31-12-2010Interest Interest Suspenseas on 31-12-2009

2008 02,25,00045,000

[2,25,000x 20%]

2009 60,000

[3,00,000 x 20%]3,00,000

1,50,000

[3,00,000 x 50%]

2010 1,27,500[2,55,000 x 50%]

2,55,000 0

1,87,5001,95,000

Slide No. 89

Hire Purchase Debtors A/c for 2010


90/90

To Balance b/d By Cash A/c14,90,625

Dr. Cr.

20,56,250

34,45,625

By Balance c/d 13,89,375

34,45,625

To HP Sales 17,00,000

To HP Interest Suspense 2,55,000

To Profit & Loss A/c

To Balance c/d

By Balance b/d3,62,500

1,87,500

Hire Purchase Interest Suspense A/c

Dr. Cr.

1,95,000

4,50,000

By HP Debtors A/c 2,55,000

4,50,000

Documents

Hire Purchase Question