Hire Purchase Question

Question No.
Slide No. 1
`
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
Installments fall due at the end of every month starting from

31.1.11. Installments were due till 31.7.11 but last 2 installments
were 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
Solution:
(a)
= No. of Units sold x Hire

Purchase price / Unit
= 10 x 150
(b)
Interest
= Hire Purchase price / Unit
Cash Price / Unit
= 150 - 130
Total Interest
= 1,500
= ` 20 / Unit
=10 x 20 = ` 200
Slide No. 4
(c)
Per instalment value
Hire Purchase Price (Per Unit) - 150
Cash down - 30
Instalment - 120
No of installments possible
= 12
Per instalment value
= 120/ 12
= ` 10/ unit
Slide No. 5
(d)
Cash Collection
= Cash down + Instalments collected

= 300 + (5 x 10) x 10)
= 300 + 500
(e)
Hire Purchase
Debtors
= ` 800
= Instalments due but not paid

= 2 (Months) x 10 (Per Unit) x 10 (Units)
= ` 200
Slide No. 6
(f)
Hire Purchase
Sales
= Cash down + Instalments fallen due

= 300 + (7 x 10) x 10)
= 300 + 700
(g)
Hire Purchase
Stock
= ` 1000
= Instalments not fallen due

= (5 x 10) x 10
= ` 500
Slide No. 7
Summary:
Hire Purchase Price 1,500
Cash down - 300
Instalment s 1,200
Due 700
Collected - 500
Not Due 500
Not Collected 200
Slide No. 8
Hire Purchase Trading A/c

To Balance b/d
Hire Purchase Stock
xxx By Stock Reserve

xxx
By Goods Repossessed
(Agreed Value)
xxx By Cash (Collection)
To Goods sent on Hire

Purchase (Hire Purchase Price)
xxx
To Cash (Expenses, if any)
xxx By P & L A/c (Loss)
To Stock Reserve
xxx By Balance c/d
To Profit & Loss A/c (Profit)
xxx Hire Purchase Stock
By Goods sent on Hire

Purchase (Loading)

xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
Slide No. 9
Question No. 2
Slide No. 10
From the following details, set out the Hire Purchase Account in
the books of a trader who sells a number of articles of
comparatively 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 hire
purchase customers he adds 60% to the cost of the goods.
`
01/01/10
Stock in customers hands at selling price
1,620
31/12/10
Sale of hire purchase goods during the year at selling price
6,534
Cash received from hire purchase customers at selling price
2,100
Stock in customers hands at selling price
5,674
Slide No. 11
Solution:
Working Note 1:
Cost
Markup
Hire Purchase Price
Markup on cost =
Markup on Hire Purchase Price =
100
60
160
60/100 (or) 3/5
60/160 = 3/8
Slide No. 12
Check List
(1)
Opening Balance (Only Hire Purchase Stock, Shop

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

and Hire Purchase Debtors)
(3)
Goods sent on Hire Purchase (Hire Purchase Price,

Split between cost and markup between shop stock
and HP Adjustment)
(4)
Goods repossessed (Agreed Value)
(5)
Cash expenses (if any)
(6)
Cash collection
(7)
Adjustments
(a) Opening Stock Reserve
(b) Closing Stock Reserve
Slide No. 13
Stock and Debtors System 4 Ledger A/cs

(1)
Hire Purchase Stock
(2)
(3)
Hire Purchase Adjustment
(4)
Shop stock (Cost)
Slide No. 14
Stock and Debtors System 6 Ledger A/cs

(1)
Hire Purchase Stock
(2)
(3)
Hire Purchase Adjustment
(4)
Hire Purchase Profit and Loss A/c
(5)
Shop stock (Cost)
(6)
Goods repossessed
Slide No. 15
Journal Entries:
(1)
Hire Purchase Stock A/c
Dr.
xxx
To Shop Stock A/c (Cost)
xxx
To Hire Purchase Adjustment

A/c (Loading)
xxx
Slide No. 16
(2)
Hire Purchase Sales: When installments are falling due
Hire Purchase Debtors A/c
Dr.
xxx
xxx
To Hire Purchase Stock A/c
(3)
When Cash is Collected
Cash A/c
To Hire Purchase Debtors A/c
Dr.
xxx
xxx
Slide No. 17
Dr.
Cr.
Opening Stock
(Instalments not fallen due)
xxx
Sales
(Installments fallen due)
xxx

(During the current year)
xxx
Goods repossessed
xxx
Closing Balance
(Installments not fallen due
during current year)
xxx
xxx
xxx
Slide No. 18
Dr.
Cr.
Opening Balance
(Installments due but not
paid during last year)
xxx
Cash collection
(Current year)
xxx
Sales
(Installments fallen due
during current year)
xxx
Goods repossessed
xxx
Closing Balance
(Installments due but not
paid during current year)
xxx
xxx
xxx
Slide No. 19
Dr.
Shop Stock (Cost) A/c
Opening Stock
xxx
Cost of (Cash / Credit) sales
xxx
Purchases
xxx
xxx
Closing Stock
xxx
xxx
Cr.
xxx
Under Single Entry (Cross Verification)

Gross Profit
= Sales x Gross Profit Ratio
Slide No. 20
Under Stock and Debtors System

Dr.
Shop Stock A/c

Cr.
To Balance b/d.
1,620
To Shop Stock A/c
4,084
To Hire Purchase Adj. A/c
2,450
By Hire Purchase Debtors A/c
2,480
Dr.
To Purchase A/c
8,154
By Hire Purchase Stock A/c
4,084
4,084
5,674
8,154

Dr.

Cr.
2,480
4,084
4,084
By Balance c/d
Cr.
By Cash A/c
By Balance c/d.
2,100
380
2,480
2,480
Dr.
To Profit and Loss A/c
Cr.
930
930
By Profit and Loss A/c
930
930
Hire Purchase Adjustment A/c

Dr.
To Hire Purchase Profit &
Loss A/c
To Balance c/d (5,674 x
3/8)
Cr.
930
2,128
3,058
By Balance c/d
By Hire Purchase Stock A/c
608
2,450
3,058
Slide No. 21

By Stock Reserve
(1,620 x 3/8)
To Balance b/d
Hire Purchase Stock
1,620 By Goods sent on Hire

Purchase(6,534 x 3/8)

Purchase
6,534
To Stock Reserve
2,128 By Balance c/d
To Profit & Loss A/c (Profit)
2,450
By Cash
930 Hire Purchase Stock

11,212
608
2,100
5,674
380
6,054
11,212
Slide No. 22
Under Single Entry (Cross Verification)

Gross Profit

= 2,480 x 3/8 = 930
Slide No. 23
Question No. 3
Slide No. 24
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 Purchase
Adjustment Account:
`
01/01/10
Stock out on hire at Hire Purchase Price

Stock in hand, at Shop
Installment due (Customers still paying)
31/12/10
Stock out on hire at Hire Purchase Price
1,20,000
15,000
9,000
1,38,000
Stock in hand, at Shop
21,000
Installments due (Customers still paying)
15,000
Cash received during the year
2,40,000
Slide No. 25
Solution:
Cost
Markup
Selling Price
Markup on cost
Markup on Selling Price
Slide No. 26

Dr.
Shop Stock A/c

Cr.
1,20,000 By HP Drs.
2,46,000
66,000 2,64,000 By Bal c/d
1,38,000
To Balance b/d.
To Shop Stock A/c 1,98,000
To HP Adj. A/c
3,84,000
3,84,000
Dr.
To Balance b/d.
To Purchase A/c
Cr.
15,000 By HP Stock A/c
2,04,000 By Balance c/d
2,19,000
1,98,000
21,000
2,19,000

Dr.
Cr.
To Balance b/d
9,000
To HP Stock A/c
2,46,000
By Cash A/c
By Balance c/d.
2,55,000
2,40,000
15,000
2,55,000

Dr.
Cr.
To HP Profit & Loss A/c 61,500
By Balance c/d
(1,20,000 x 1/4)
30,000
To Balance c/d
(1,38,000 x 1/4)
By HP Stock A/c
66,000
34,500
96,000
96,000
Slide No. 27
Single Entry System (Cross Verification)

Gross Profit

= 2,46,000 x 1/4
= 61,500
Slide No. 28
Under Debtors System:

By Stock Reserve
(1,20,000 x 1/4)
To Balance b/d
Hire Purchase
Stock
1,20,000
Hire Purchase
Debtors
9,000
To Goods sent
on Hire Purchase
30,000
By Cash A/c
1,29,000
By Goods sent on
Hire Purchase
(2,64,000 x 1/4)
2,64,000
By Balance c/d:
2,40,000
66,000
To Stock Reserve A/c

(1,38,000 x )
34,500
Hire Purchase
Stock
1,38,000
To Profit & Loss A/c
61,500
Hire Purchase
Debtors
15,000
4,89,000
1,53,000
4,89,000
Slide No. 29
Question No. 4
Slide No. 30
Ram & Co. have hire purchase department. Goods are sold on hire
purchase at cost plus 50%. From the following particulars find out
the profit made by the hire purchase department:
`
01/01/10
Stock out with Hire Purchase Customer at selling price

Stock at shop at cost
Instalments due, customers paying
31/12/10
Cash received from customers

Goods repossessed (Instalments due ` 2,000) as valued
Instalments due, customers paying
9,000
18,000
5,000
60,000
500
9,000
Stock at shop at cost (excluding repossessed goods)
20,000
Goods Purchased during the year
60,000
Slide No. 31
Solution:
Cost
Markup
Selling Price
100
50
150
(Hire Purchase price)
Markup on Cost
= 50/100 = 1/2
Markup on Hire Purchase Price
= 50/150 =1/3
Slide No. 32

Dr.
Shop Stock A/c

Cr.
9,000 By HP Drs. A/c 66,000
To Balance b/d.
To Shop Stock A/c
58,000
To HP Adj. A/c
29,000
87,000 By Balance c/d 30,000

96,000
Dr.
To Balance b/d.
18,000 By HP Stock A/c
58,000
To Purchase A/c
20,000
78,000
78,000
96,000

Dr.

Cr.
To Balance b/d
5,000
To HP Stock A/c
66,000
By Cash A/c
BY Goods
repossessed A/c
By Balance c/d.
71,000
60,000
2,000
9,000
To HP Profit & Loss A/c
22,000
To Balance c/d
(30,000 x 1/3)
10,000
32,000
Cr.
Dr.
To Goods
repossessed
A/c
1,500 By HP Adjust. A/c
22,000
20,500
To P & L A/c
71,000
22,000
22,000
Goods Repossessed A/c

Dr.
Cr.
Cr.
By Balance b/d
(9,000 x 1/3)
3,000
By HP Stock A/c
29,000
32,000
Dr.
To HP Debtors A/c
Cr.
2,000 By HP P & L A/c
By Balance c/d
2,000
1,500
500
2,000
Slide No. 33
(a)
If installments have fallen due, but not paid and

repossession takes place.
(i)
Goods repossessed A/c

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

To Goods repossessed A/c
Dr.
Cr.
(Loss on Repossession = Unpaid amount

Agreed Value of Goods repossessed)
Slide No. 34
Single Entry System (Cross Verification)

Gross Profit

= 66,000 x 1/3 =22,000
Net Profit
= Gross Profit Loss on

repossession
= 22,000 1,500 = 20,500
Slide No. 35

To Balance b/d
By Stock Reserve A/c
HP Stock
9,000
HP Debtors
5,000
60,000
By Cash A/c
14,000
By Goods repossessed A/c

(Agreed Value)

Purchase
87,000
By Goods sent on
Hire Purchase
10,000
By Balance c/d:
HP Stock
3,000
20,500
1,31,500
HP Debtors
500
29,000
30,000
9,000
39,000
1,31,500
Slide No. 36
Question No. 5
Slide No. 37
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
3,00,000
Instalments due and collected during 2010
8,00,000
Instalments due but not collected during `10 including

`10,000 for which goods were repossessed
50,000
Instalments not due on 31.12.10 including `20,000 for which

goods were repossessed
3,70,000
Instalments collected on repossessed stock
15,000
M/s. Calcutta Traders valued repossessed stock at 60% of original cost.

Slide No. 38
Solution:
Cost
Markup
Hire Purchase Price
100
25
125
Markup on cost =
25 / 100 = 1/4
Markup on Hire Purchase Price =
25/125 = 1/5
Slide No. 39
Working Note 2:
Agreed Value
Installments due and collected on repossessed

stock
15,000
Installments due, but not collected on

repossessed stock
10,000
Installments not due on repossessed stock
20,000
Hire purchase price of repossessed stock
45,000
Markup on above = 45,000 x 1/5 =
9,000
Original cost of repossessed stock (45,000

9,000)=
36,000
Agreed Value = (36,000x 60%)
21,600
Loss =[Due + Not due Stock Reserve] - Value
4,400
10000 + 20000 4000 [20000x1/5] - 21600

Slide No. 40
If installment has not fallen due, but repossession takes place.

Goods repossessed A/c
Dr.
16000
Dr.
4000
20000
Slide No. 41

Dr.
Cr.
3,00,000 By HP Drs. A/c 8,50,,000
To Balance b/d.
By Goods
16,000
repossessed A/c

To HP Adj. A/c
Shop Stock A/c
1,84,000 9,20,000 By HP Adj. A/c

By Bal. c/d
12,20,000
Dr.
To Purchase A/c
12,20,000
BY Goods
repossessed A/c
By Balance c/d.
8,50,000
7,36,000
7,36,000

Cr.
By Cash A/c
7,36,000
3,50,000
Dr.
8,50,000
7,36,000 By HP Stock A/c
4,000

To HP Stock A/c
Cr.
8,00,000
10,000
40,000
Dr.
To Goods
repossessed
A/c
Cr.
4,400 By HP Adjust. A/c 1,70,000
1,65,600
To P & L A/c
8,50,000
1,70,000
1,70,000
It is assumed that there is no opening balance of Debtors.


Dr.
To HP Stock A/c
Cr.
4,000
To HP Profit & Loss A/c 1,70,000

To Balance c/d
(3,50,000 x 1/5)
By Balance b/d
(3,00,000 x 1/5)
By HP Stock A/c
60,000
1,84,000
70,000
2,44,000
2,44,000
Dr.
Cr.
4,400
To HP Debtors A/c
10,000 By HP P & L A/c
To HP Stock A/c
21,600
26,000
26,000
Slide No. 42
Cross Verification:
Gross Profit

= 8,50,000 x 1/5 =1,70,000
Net Profit
= Gross Profit Loss on Repossession

= 1,70,000 4,400 = 1,65,600
Slide No. 43

To Balance b/d
By Stock Reserve
Hire Purchase Stock
3,00,000
By Cash A/c
To Goods sent
on Hire Purchase
9,20,000
By Goods repossessed A/c

(Agreed Value)

70,000
1,65,600
8,00,000
21,600
By Goods sent on Hire Purchase
1,84,000
By Balance c/d:
Hire Purchase Stock
14,55,600
60,000
3,50,000
40,000
3,90,000
14,55,000
Slide No. 44
Question No. 6
Slide No. 45
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 hirePurchase basis. Information about terms is given below:
Radio Sets
(`)
Radiograms
(`)
Cash Price
500
1,500
Cost
400
1,200
Cash down for hirepurchase
100
300
Monthly Installment
50
150
Number of installments
10
12
Particulars
The company purchased goods costing `5,00,000 in all and made cash
sales totalling `4,30,000. Stock on hand on 31st Dec. 2010 was valued
at `60,000. Hire-Purchase transactions were as follows:
Slide No. 46
Number
Sold
Instalments
Collected
Installments
due
(Customers
Paying)
Radiograms
20
110
10
Radio Sets
40
260
15
2 radiograms and 3 radio sets on which only four installments were

collected were repossessed and were valued at `1,600. This is not
included in the figure of stock mentioned above. Prepare accounts to
show the profit or loss made by the company.
Slide No. 47
Solution:
Working Note 1:
(A)
Cost
(B)
Hire Purchase Price

(i)
Cash Down
(ii)
Installments
(iii)
Hire Purchase Price
Markup
Radio Sets
Radiograms
400
1,200
100
300
500= (50 x 10)
1,800=150 x 12
600
2,100
(C)
Markup (B A)
200
900
(D)
Markup on Cost
= (200/400)
3/4 = 900/1200
(E)
1/3
3/7
Slide No. 48
Working Note 2:

Radio Sets
(A) No. of units sold

(B) Hire Purchase Price
(C) Goods sent on Hire Purchase (HP Price)
(D) Markup on above
(E) Goods sent on Hire Purchase (Cost)
Radiograms
40
20
600
2,100
24,000
42,000
8,000
18,000
(24,000 x 1/3)
(42,000 x 3/7)
16,000
24,000
40,000
Slide No. 49
Working Note 3: Cash collection (Cash Down + Installments collected)

Radio Sets
Radiograms
(A)
Cash down collection
4,000= (40 x 100)
6,000= (20 x 300)
(B)
Installments collected
13,000= (260 x 50)
16,500= (110 x 150)
(C)
Total cash collection
17,000
22,500
39,500
Slide No. 50
Working Note 4:
Goods repossessed
3 Radio sets and 2 radiogram, on which 4 installment were collected and

repossessed. It is assumed that remaining installments were also due but not
paid and hence repossessed.
(A)
No. of Units repossessed
(B)
Total possible installments for

goods repossessed
(C)
Installment collected
(D)
Installments due but not paid
(E)
Goods repossessed
Radio Sets
Radiograms
30= (3 x 10)
24= (2 x 12)
12= (3 x 4)
8= (2 x 4)
18
16
900= (18 x 50)
2,400 =(16 x 150)
3,300= (2,400 + 900)
Slide No. 51
Working Note 5:
Closing Debtors (Installments due, but not paid)
Closing Debtors
Radio Sets
Radiograms
750 =(15 x 50)
1,500 =(10 x 150)
Slide No. 52
Working Note 6:
Closing Hire Purchase Stock (Installments not fallen due)
Radio Sets
Radiograms
(i) No. of units sold
40
20
(ii) Possible Installments per unit
10
12
400
240
Due & collected
260
110
(ii) Due but not collected
15
Due but not collected

Repossessed
18
(A) Total possible Installments
(iii) Total possible Installments

(B) Installments fallen due
(i)
(iii)
293
10
136
16
Slide No. 53
Working Note 6:
Closing Hire Purchase Stock (Installments not fallen due)
Radio Sets
Radiograms
(C) Not fallen due
107=400-293
104=240-136
(D) Closing stock (at HP Price)
(107 x 50) =5350 +
(104 x 150) =15,600
20,950
(E) Stock Reserve
(5,350 x 1/3) =1,783
(15,600 x 3/7)= 6,686
8,469
Slide No. 54
Under Debtors System

Cr.
Dr.
To Goods sent on Hire Purchase
To Stock Reserve
66,000
8,469
15,831
By Cash A/c
39,500
By Goods sent on Hire Purchase
26,000
By Goods repossessed
1,600
By Balance c/d
Stock
Debtors
90,300
20,950
2,250
23,200
90,300
Slide No. 55
Single Entry
(For Cross Verification)
Hire Purchase Sales

(A)
Cash Down
(B)
No. of Installments
fallen due
Installments fallen due (`)
(C)
Hire Purchase Sales
(D)
Gross Profit
Radio Sets
Cash Down + Installments Fallen due

4,000
6,000
293
136
14,650
20,400
(293 x 50)
(136 x 150)
18,650
26,400
45,050
6,217
11,314
17,531
(18,650x1/3)
Less: Loss on Repossession
Net Profit
Radiograms
(26,400x3/7)
1,700
15,831
Slide No. 56

Shop Stock A/c

Dr.
Cr.
To Shop Stock A/c
40,000 By HP Drs. A/c 45,050
To HP Adj. A/c
26,000 By Balance c/d 20,950
Dr.
Cr.
40,000
To Purchase A/c 5,00,000 By HP Stock A/c
By Trading A/c
(Cost of cash sales) 4,00,000
60,000
By Balance c/d
66,000
Dr.
To HP Stock A/c

Cr.
45,050
By Cash A/c
39,500
BY Goods
repossessed A/c
3,300
By Balance c/d.
2,250
45,050
Dr.
To Goods
repossessed A/c
To P & L A/c
To Balance c/d
By HP Stock A/c
15,831
17,531
26,000
Dr.
To HP Debtors A/c
Cr.
3,300 By HP P & L A/c
8,469
26,000
17,531

Cr.
17,531
1,700 By HP Adjust. A/c
17,531

To P & L A/c
Cr.
45,050
Dr.
5,00,000
5,00,000
66,000
By Balance c/d
26,000
3,300
1,700
1,600
3,300
Slide No. 57
Home Comfort Limited Trading A/c

Cr.
Dr.
To Shop stock
4,00,000
To Gross Profit
30,000
By Sales
4,30,000
4,30,000
4,30,000
Home Comfort Limited Profit and Loss A/c

Dr.
To Net Profit
Cr.
45,831
45,831
By Gross Profit
30,000
By HP Profit and Loss A/c
15,831
45,831
Slide No. 58
Question No. 7
Slide No. 59
Model Construction
The hire purchase department of B.G. Ltd. sells television sets and
room coolers. This department was newly started in 2010. The
relevant information is as follows:
Television Set (`)
Room Cooler (`)
Cost
5,400
2,000
Cash Price
6,300
2,400
Cash down Payment
900
400
Monthly Installment
600
200
10
12
Number of installments
During the year, 100 television sets and 120 room coolers were
sold on hire purchase basis.
Slide No. 60
Two television sets on which 3 installment only could be collected

and 4 room coolers on which 5 installments had been collected
were repossessed. These were valued at `10,000 after
reconditioning at a cost of `1,000, and were sold outright for
`14,000.
Other installments collected and those due (customer still paying)
were respectively as follows:
Television sets
270 and 20
Room Coolers
400 and 30
Prepare Accounts on stocks and debtors system to reveal the

profit of the Department.
Slide No. 61
Solution:
Working Note 1:
Markup
(A)
Cost Price
(B)
Hire Purchase Price
TV
RC
5,400
2,000
900
400
(i)
Cash Down
(ii)
Installments Value
600 x 10= 6000
200 x 12=2400
(iii)
Hire Purchase Price
6900
2800
(C)
Markup (B A)
1500
800
(D)
Markup on Cost
5/18
2/5
(1,500/5,400)
2/5 (800/2000)
5/23
2/7
(E)
Slide No. 62
Working Note 2:
Goods sent on Hire Purchase = No. of units sold x HP Price / unit
TV
(A) No. of units sold
(B) Hire Purchase Price
(C)
Goods sent on
HP (HP Price)
(D) Markup on above
RC
100
120
6,900
2,800
6,90,000
3,36,000
10,26,000
1,50,000
96,000
2,46,000
6,90,000 x 5/23
(E)
Goods sent on Hire

Purchase (Cost)
5,40,000
3,36,000 x 2/7
2,40,000
7,80,000
Slide No. 63
Working Note 3: Cash collection (Cash Down + Installments collected)

TV
(A)
Cash Down
(B)
Installments collected
On Repossessed Stock
Other Installments
(C)
cash collection
RC
(100 x 900) 90,000
(2 x 3 x 600) 3,600
(270 x 600)1,62,000
48,000
(4 x 5 x 200) 4,000
(400 x 200) 80,000
2,55,600
1,32,000
3,87,600
Slide No. 64
Working Note 4:
Closing Hire Purchase Debtors = Instalments fallen due but not paid
(A)
No. of Installments due but not paid
(B)
Closing Hire Purchase Debtors
TV
RC
20
30
12,000
(20 x 600)
6,000
(30 x 200)
18,000
Slide No. 65
Working Note 5:
Goods repossessed
Note 2TVs on which 3 installments were collected and 4 RCs on which 5

installments were collected were repossessed. It is assumed that remaining
installments had fallen due not paid and repossessed.
(A)
No. of Units repossessed
(B)
Total possible installments for goods

repossessed
(C)
Installments Collected on above
(D)
Installments due but not paid & repossessed
(E)
Goods repossessed
TV
RC
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:
(A)
Closing Hire Purchase Stock (Installments not due)
Total possible Installments
TV
RC
1000
(100x 10)
1,440
(120 x 12)
(B) Installments due

(i)
Due, collected &

Repossessed
Others
(ii)
Due but not collected

Due but not collected and
(iii) Repossessed
(C)
Instalments not due
(D)
Closing stock
(at HP Price)
6
(2 x 3)
20
(5 x 4)
270
310
400
20
30
14
28
690
962
4,14,000
(690 x 600)
1,92,400
(962 x 200)
478
6,06,400
(E)
Stock Reserve
90,000
(4,14,000 x 5/23)
1,44,971
54,971
(1,92,400 x 2/7)
Slide No. 67

Cr.
Dr.
To Goods sent on HP
10,26,000
By Cash A/c (Instalments)
3,87,600
1,000
By Cash A/c (Sale of

repossessed Goods)
14,000
1,44,971
By Goods sent on HP
2,46,600
1,00,029
By Balance c/d
To Cash A/c
Stock
Debtors
12,72,000
6,06,400
18,000
6,24,400
12,72,000
Slide No. 68
Under Single Entry (For Cross Verification)

Hire Purchase Sales
(A)
Cash Down
(B)
No. of installments due

Installments due (`)
(C) Hire Purchase Sales

(D) Gross Profit
Cash Down +Installments fallen due

TV
RC
90,000
48,000
310
478
1,86,000
95,600
(310 x 600)
(478 x 200)
2,76,000
1,43,600
4,19,600
60,000
41,029
1,01,029
(2,76,000 x 5/23)
(E) Add: Profit on re-sale
(F)
Less: Loss on Repossession
(G) Net Profit
3,000
(4,000)
1,00,029
Slide No. 69

Shop Stock A/c

Dr.
Cr.
To Shop Stock A/c
7,80,000
By HP Drs. A/c
4,19,600
To HP Adj. A/c
2,46,000
By Balance c/d
6,06,400
10,26,000
Dr.
To Purchase
10,26,000

Dr.
To HP Stock A/c
By Cash A/c
3,87,600
BY Goods
repossessed A/c
14,000
By Balance c/d.
18,000
4,19,600
1,01,029 By HP Stock
7,80,000
7,80,000
Cr.
To Goods
repossessed A/c
To P & L A/c
4,19,600
4,000
By Goods
repossessed A/c
1,00,029 By HP Adjust.
1,01,029
1,04,029
1,04,029
2,46,000
Dr.
To HP Debtors A/c
Cr.
14,000 By HP P & L A/c
By Balance c/d
To Balance c/d
(4,14,000 x5/23)
90,000
(1,92,400 x2/7)
54,971
To Balance b/d
1,44,971
2,46,000
3,000

Cr.
To HP P & L A/c
7,80,000
Dr.

Dr.
7,80,000 By HP Stock A/c

Cr.
4,19,600
Cr.
2,46,000
4,000
10,000
14,000
14,000
10,000 By Sales A/c
14,000
To Cash A/c
1,000
To HP P & l A/c
3,000
14,000
14,000
Slide No. 70
Question No. 9
Slide No. 71
Final Accounts with Hire Purchase

Venus Enterprises sells goods for cash and hire purchase. The rate of gross profits for
hire purchase sales is 32 percent on cost, and cash sales are made at the hire purchase
price as reduced by 1/11th. The Trading Account is constructed on the basis that full
credit 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 for
the year ended 31st December, 2010, was as follows:
`
To Opening Stock
To Purchases
To Gross Profit
2,10,000
By H.P. Sales
13,39,800
10,75,000
Less Returns
14,850
3,54,950
16,39,950
13,24,950
By Cash Sales
1,80,000
By Closing Stock
1,35,000
16,39,950
Instalments received during the year amounted to `7,96,950. Returns of `14,850

represents unpaid instalments or re-possessed goods, which have been included in
closing 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 trading
by preparing Hire Purchase Trading Account, General Trading Account and Goods
Re-possessed Account.
Slide No. 72
Solution:
Cost
Markup
Hire Purchase Price
100
32
132
Markup on Cost
= 32/100 = 8/25
= 32/132 =8/33
Note: In the given problem, goods sent on Hire Purchase, i.e., Hire
Purchase delivery were treated as Sales. In case of Hire Purchase
(vendor books), it will be treated as sales, only when Installments have
fallen due.
Slide No. 73

Shop Stock A/c

Dr.
Cr.
By HP Drs

3,24,800 13,39,800
To HP Adj. A/c
8,11,800
By Bal. c/d 5,28,000
13,39,800
Dr.
To Purchase A/c 10,75,000
8,11,800
By Cash A/c
By Goods
repossessed A/c
8,11,800
7,96,950
14,850
Dr.
To Goods
repossessed
A/c
To Balance c/d
(5,28,000 x 8/33)
Note:
12,85,000
4,850 By HP Adjust. A/c 1,96,800

1,91,950
1,96,800
1,96,800
3,24,800
Dr.
To HP Debtors A/c
Cr.
14,850 By HP P & L A/c
1,28,000
3,24,800
1,25,000

Cr.
By HP Stock A/c
By Balance c/d
Cr.
To P & L A/c
To HP Profit & Loss A/c 1,96,800
1,45,000
8,11,800
Dr.
By Trading Cost
of Cash Sales
12,85,000
13,39,800
Cr.
To HP Stock A/c
2,10,000 By HP Stock A/c 10,15,000
To Balance b/d

Dr.
Cr.
10,000
By Balance c/d
3,24,800
Installments collected during the year 7,96,950 i.e.,

treated as total cash collection for the year.
4,850
14,850
14,850
Note: It is assumed that there is no closing Hire

Purchase Debtors.
Slide No. 74
General Trading A/c and Profit and Loss A/c

Cr.
Dr.
To Shop Stock A/c
To Gross Profit
1,45,000
By Sales A/c
35,000
1,80,000
1,80,000
To Net Profit
1,80,000
2,26,950
By Gross Profit b/d

By Hire Purchase
Profit & Loss A/c
2,26,950
35,000
1,91,950
2,26,950
Slide No. 75
Question No. 10
Slide No. 76
In the Books of Vendor

From the following information extracted from the books of Easy Finance
P. Ltd., prepare an account for the year ended on 31.12.10 showing the profit
in respect of hire Purchase business of the Company:
1
Instalments due but not received as on 1.1.10
30,000
Instalments due but not received as on 31.12.10
50,000
Cash received during the year 2010 by way of H.P.

instalments
Value of stock 'Out' on H.P. as at 1.1.10
40,00,000
1,20,000
Cost price of trucks 'Out' on H.P. as at 31.12.10
20,00,000
(b)
Total amount of instalments receivable in respect

of 5 (a) above.
24,00,000
(c)
Total amount of instalments received and due up to

31.12.10 in respect of 5 (a) above
18,00,000
5 (a)
Slide No.
77
Purchases of trucks during the year 2010
Sales of Trucks otherwise than on H.P.(at a profit of

6 % of cost)
4,25,000
Body building charges in respect of some of the

trucks sold on H.P.
2,00,000
Interest paid
40,000
Unsold trucks on hand on 31.12.10
80,000
10
40,00,000
Slide No.
78
Solution:
Working Note 1: [Reference points 5 (a) and 5 (b)]
Cost price of trucks Out on Hire Purchase
as at 31-12-2010
20,00,000
Total amount of installments receivable in

respect of above
24,00,000
Markup
4,00,000
Markup on Cost = 4/20 =
1/5
Markup on Hire Purchase = 4/24 =
1/6
Slide No. 79

Shop Stock A/c

Dr.
Cr.
1,20,000 By HP Drs. A/c 40,20,000
To Balance b/d
To Shop Stock 37,50,000
To HP Adj.
(45,00,000
x 1/6)
7,50,000 45,00,000
By Balance c/d
(24,00,000
6,00,000
18,00,000)
[5 (b) 5 (c)]
46,20,000
Dr.
To Op. Stock A/c
Cr.
2,30,000 By HP Stock A/c 37,50,000
(Cost of Cash sales)
To Purchases A/c 40,00,000
4,00,000
By Trading A/c
By Balance c/d
46,20,000
42,30,000
Dr.
To HP Stock A/c
Cr.
30,000
40,20,000
By Cash A/c
40,00,000
Dr.
To Shop Stock A/c 4,00,000 By Sales A/c
To Gross Profit
25,000
425000 x 6.25/106.25
40,50,000
4,25,000
Dr.
Cr.
To HP P & L A/c
6,70,000 By Balance b/d
To Balance c/d
1,00,000 (1,20,000 x 1/6)
4,25,000
20,000
Dr.
Cr.
To Net Profit A/c 4,55,000
By Gross Profit b/d 25,000

By HP P&L A/c
By HP Stock A/c 7,50,000

7,70,000
4,25,000
General Profit and Loss A/c
(6,00,000 x 1/6)
Cr.
50,000
BY Balance c/d
40,50,000
42,30,000
General Trading A/c

To Balance b/d
80,000
7,70,000
4,30,000
670000-2L-40k
4,55,000
4,55,000
Slide No. 80

Cr.
Dr.
By Stock Reserve
(1,20,000 x 1/6)
To Balance b/d:
Debtors
Stock
To Goods sent on HP
By Cash A/c
30,000
1,20,000
20,000
40,00,000
1,50,000 By Goods sent on HP
7,50,000
To Cash
2,40,000
Debtors
To Stock Reserve
1,00,000
Stock
4,30,000
54,20,000
50,000
6,00,000
6,50,000
54,20,000
Slide No. 81
Question No. 12
Slide No. 82
Interest Suspense Method

Kapil Dev Limited sells goods on Hire Purchase on the basis of
25% deposit balance being payable, with 20% interest on
balance after deducting deposit, only in 8 equal quarterly
installments on 31.03, 30.06, 30.09 & 31.12 each year. The first
installment is payable at the end of the quarter in which the sale
is made. The company transfer 50%, 30% & 20% of the interest
to Profit and Loss Account in the 1st, 2nd and 3rd year
respectively.
Balances on 01.01.10
Hire Purchase Interest Suspense A/c
`
14,90,625
1,95,000
Slide No. 83
Hire Purchase Sales (exclusive of interest) which have evenly

occurred over each of the 3 years are
`
2008
15,00,000
2009
20,00,000
2010
17,00,000
All dues are promptly collected. Draw out the following:

I
HP Debtors A/c
II
HP Interest Suspense A/c
Slide No. 84
Solution:
(A)
At the time of sales

(B)
Dr.
xxx
To Hire Purchase Sales A/c
xxx
To Hire Purchase Interest Suspense A/c
xxx
At the time of collection

Cash A/c
Dr.
xxx

(C)
xxx
At the end of the year:

Dr.
xxx
xxx
Slide No. 85
Working Note 1:
Year
1
31-3
30-6
30-9
31-12
10
16
10/32
16/32
6/32
32
Slide No. 86
Note:
(1)
Goods are sold on Hire Purchase on the basis that 25% is paid as
cash down. Balance amount is paid along with interest in 8 equal
quarterly installments.
(2)
Sales have taken place evenly throughout the year
Working Note 2:
Sales
Deposit
(Sales x 25%)
Balance
Interest @
20%
Installment
B = A x 25%
C=A-B
D=C x 20%
E=C+D
2008
15,00,000
3,75,000
11,25,000
2,25,000
13,50,000
2009
20,00,000
5,00,000
15,00,000
3,00,000
18,00,000
2010
17,00,000
4,25,000
12,75,000
2,55,000
15,30,000
Year
Slide No. 87
Working Note 3:
Opening and Closing Debtors
Year
Installment
Debtors as on 31-12-2009
Debtors as on 31-12-2010
2008
13,50,000
2,53,125
[13,50,000 x 6/32]
2009
18,00,000
12,37,500
[18,00,000 x 22/32]
3,37,500
[18,00,000 x 6/32]
2010
15,30,000
10,51,875
[15,30,000x 22/32]
14,90,625
13,89,375
Slide No. 88
Working Note 4:
Year
Interest
Interest Suspense
as on 31-12-2009
Interest Suspense
as on 31-12-2010
2008
2,25,000
45,000
[2,25,000x 20%]
2009
3,00,000
1,50,000
[3,00,000 x 50%]
60,000
[3,00,000 x 20%]
2010
2,55,000
1,27,500
[2,55,000 x 50%]
1,95,000
1,87,500
Slide No. 89
Hire Purchase Debtors A/c for 2010

Cr.
Dr.
To Balance b/d
14,90,625 By Cash A/c
To HP Sales
17,00,000
To HP Interest Suspense

34,45,625
20,56,250
13,89,375
34,45,625

Cr.
Dr.
3,62,500
By Balance b/d
1,95,000
To Balance c/d
1,87,500
By HP Debtors A/c
2,55,000
4,50,000
4,50,000
Slide No. 90

Hire Purchase Question

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Question No.

Cash Price/- unit

Cash down/- unit

Installments fall due at the end of every month starting from

Goods sent on Hire Purchase

Per installment value

Hire Purchase Debtors

Hire Purchase Sales

Hire Purchase Stock

Goods sent on Hire Purchase

= No. of Units sold x Hire

= Hire Purchase price / Unit

Cash Price / Unit

Per instalment value

Hire Purchase Price (Per Unit) - 150

Per instalment value

= Cash down + Instalments collected

= Instalments due but not paid

= Cash down + Instalments fallen due

= Instalments not fallen due

Cash down - 300

Not Due 500

Not Collected 200

Hire Purchase Trading A/c

xxx By Stock Reserve

Hire Purchase Debtors

xxx By Cash (Collection)

To Goods sent on Hire

To Cash (Expenses, if any)

xxx By P & L A/c (Loss)

xxx By Balance c/d

To Profit & Loss A/c (Profit)

xxx Hire Purchase Stock

By Goods sent on Hire

Hire Purchase Debtors

Stock in customers hands at selling price

Sale of hire purchase goods during the year at selling price

Cash received from hire purchase customers at selling price

Stock in customers hands at selling price

Opening Balance (Only Hire Purchase Stock, Shop

Closing Balance (Only Hire Purchase Stock, Shop Stock

Goods sent on Hire Purchase (Hire Purchase Price,

Goods repossessed (Agreed Value)

Cash expenses (if any)

Stock and Debtors System 4 Ledger A/cs

Hire Purchase Stock

Hire Purchase Debtors

Hire Purchase Adjustment

Shop stock (Cost)

Stock and Debtors System 6 Ledger A/cs

Hire Purchase Stock

Hire Purchase Debtors

Hire Purchase Adjustment

Hire Purchase Profit and Loss A/c

Shop stock (Cost)

Goods sent on Hire Purchase

Hire Purchase Stock A/c

To Shop Stock A/c (Cost)

To Hire Purchase Adjustment

Hire Purchase Sales: When installments are falling due

Hire Purchase Debtors A/c

To Hire Purchase Stock A/c

When Cash is Collected

Hire Purchase Stock A/c