Subject: Financial Accounts

Topic: Hire Purchase By: Questionscastle Academic Team Document Code: CA/IPCC/ACC/00022
Q 1. K Ltd. acquired a plant on 1st Jan 1998 on Hire purchase basis. The terms of hire purchase agreement are mentioned below: 1. Down Payment of `40,000 on or before delivery, 2. Four half yearly payment of `30,000 each commencing from 30th June 1999 In arriving at the terms the plant manufacturer compounded interest rate at 6% p.a. with year rest. Calculate cash price. Q 2. On 1st January 1991, Axe Ltd acquired a machine the cash price of which was `6,450. The purchase was financed on hire purchase basis. `1,000 were payable on 1st Jan 1991 and installments of `2,000 each on 31st Dec 1991, 1992 and 1993 respectively. The rate of interest was 5% p.a. On 1st Jan 1993 the machine was sold for `5,000 and debt of hire vendor was cleared on the same date. Show account of Hire Vendor and Machine account in Axe Ltd.s book after writing depreciation at 10% p.a. on WDV. Q 3. On 1st Jan 1978, Akhil purchased furniture on hire purchase basis from Real Furniture. Agreeing to pay four semiannual installments of `975 each commencing from 30th June 1978. The cash price of the furniture was `3,000. Interest rate was 24% p.a. It was agreed that in event of loss Akhil will pay a sum or `1,200. On 31st Dec 1978 at the time of payment of installment Akhil showed his intention of terminating the agreement. The goods were repossessed by Real Furniture and Ashok made the necessary payment as per the Hire Purchase Act, 1972. The furniture was valued by Real Furniture at `1,500 and it incurred an expenditure of `200 for getting it repair. The repossessed furniture was sold for `1,900 on 31st Jan. Show the necessary ledger accounts in the books of Real Furniture assuming that the hire purchased transactions are entered in book as sales. Q 4. Jain Transports purchased a truck on Hire Purchase basis from Trucks Ltd. on Jan 1st 1991. The cash price was `3,00,000 and `1,20,000 were payable as down payment. Rest was payable in 12 quarterly installments of `19,200 each. On Sept 1992, the truck was sold for `2,00,000 and the amount due to Trucks Ltd. was settled for `1,02,000. The financial year of Jain Transports ends on 30th June every year. The transport company opened the truck account on cash price and amount of interest was distributed to the hire purchase period proportionally. Show the necessary ledger accounts in the books of Jain Transport. Depreciation rate is 20% p.a. Q 5. On 1.1.2001, X a washing machine dealer bought 5 machines sets from Dolphin Washing Machine Ltd on hire purchase basis. The cash price of each machine was `20,000. After payment of `25,000 initially balance was payable in 3 annual installments of `30,000 each payable at the end of each year. Dolphin Washing Machine Ltd charged interest at the rate of 10% p.a. X depreciates machines @ 20% p.a. on WDV. X paid the two installments successfully but was not able to pay the final installment. The company as a result repossessed three machines, adjusting the value of three machines against the amount due. The machines repossessed were valued at 30% p.a. depreciation on WDV. The company spent `5,000 for renewal of the repossessed items and sold them for `30,000 on 30th June 2004. Prepare necessary ledger accounts in the books of both parties. Q 6. A trader makes his sales on hire purchase basis at a profit of 25% on cost price. The following detail is provided to you find out his profit/loss: Stock in Warehouse

On 01-04-1998 On 31-03-1999

`30,000 `25,000

Overdue Installments: On 01-04-1998 `2,000 On 31-03-1999 `3,000 Goods with customers On 01-04-1998 `36,000 Purchases `64,600 Installments Received `60,000 Q 7. Ram & Shyam deals in refrigerators and radios. During the year ended 31st Dec 1998 the firm sold 5 refrigerators each at `2,500 payable in 25 installments of `100 each. 5 radio at `1,000 each payable in 10 installments of `100 each. Profit to sales ratio in each case is 20%. The further more information is available to you: Item Units Sold Total No. of No. of Installments Installments Installments installments collected not due fell due Refrigerators 5 125 30 25 95 Radios 5 50 25 25 25 One refrigerator on which five installments has been paid was repossessed due to inability of the hire purchaser to continue to pay installments. Prepare necessary accounts in the book of the firm to find out the profit of the firm on hire purchase sales for the year ended 31st Dec 1998. Q 8. A who is a transporter purchased on Jan 1st 1998 five trucks on hire purchase basis. The cash price of each truck was `55,000 and payment was to be made as per following: 1. 10% of cash price down 2. 25% of the cash price at the end of the four subsequent half years. The Payment due on 31st Dec 1998 could not be made hence the trucks were seized by the vendor. But after negotiation the vendor allowed A to retain three trucks and was decided that the value of the other two trucks would be adjusted against the amount due. The trucks were to be valued at cost less 25%. A closed his books on 30th June each year and charges depreciation at 15% on the original cost. The vendor spent `6,000 for overhauling and sold them for `95,000. Show various ledger accounts in the books of both parties. Q 9. Mr. John is a hire purchase seller. He presented you the following details for the year ended 31st Dec 2002: Unmatured installments On 01-01-2002 `16,000 On 31-12-2002 `20,000 Stock at shop On 01-01-2002 `8,000 On 31-12-2002 `6,000 Goods sent on hire purchase during the year at 33% profit on cost `60,000 You are required to prepare for him the following: 1. Hire purchase trading account assuming that there is no general sale. 2. Hire Purchase trading account and general trading account assuming that general sales amount to `25,000 at 20% profit on sale. 3. Hire Purchase trading account and general trading account assuming that general sales amount to `1,00,000 at 20% profit on sale. Q 10.A firm started business on 1st April 2001. During the year ended 31st March 2002 its total purchases amounted to `52,540 and sales excluding hire purchase transactions amounted to `63,900. The following details are of hire purchase transactions:

Item

Cost (`) ` 400 1,500 2,000

Sale Price (`) ` 600 2,400 2,800

Deposit (`) ` 100 400 400

Monthly Installment 20 of `25 10 of `200 12 of `200

Radio Motor Cycle Refrigerator

No. of installments in 2001-02 8 4 2

The installments on the refrigerator could not be kept up and it was returned on 26th Marc 2002. Stock in hand on 31st Mar 2002 excluding the returned refrigerator was valued at `7,210. Prepare the hire purchase trading account and general trading account. Q 11.Krish sold goods on hire purchase system. He fixes hire purchase price by adding 50% to the cost of the goods. The following details are related to his hire purchase business during the year ending 31st Mar 2002: 01-04-2001 31-03-2002 Hire Purchase Stock `12,000 `? Hire Purchase Debtor `300 `? Shop Stock `10,000 `15000 Goods purchased during the year `65,400 Cash received from the customers during the year `92,400 Total amount of installments that fall during the year `92,700 One customer to whom goods have been sold for `1,200 paid only 5 installments of `100 each. On his failure to pay the monthly installment on 4th Mar 200 the goods were seized on 27th Mar 2002. Prepare Hire purchase trading account. Q 12.BG Ltd. has a hire purchase department. Goods are sold on hire purchase at cost plus 50%. The following data have been accumulated for the year ended 31st Mar 2003. 01-04-2002 ` 31-03-2003 ` Stock with hire purchase customer 90,000 ? Stock at shop 1,80,000 2,00,000 Installments due (Customers still paying) 50,000 90,000 Prepare Hire Purchase Trading Account in the following cases: Case 1: If cash received from hire purchaser amounted to `6,00,000 and goods purchased during the year amounted to `6,00,000. Case 2: If total amount that fell due during the year amounted `6,00,000 and goods purchased during the year amounted to `6,00,000. Case 3: If cash received from hire purchasers amounted to `6,00,000 and goods sold on hire purchase at cost amounted to `6,00,000. Case 4: If cash received from hire purchasers amounted to `6,00,000. Goods purchased during the year amounted to `6,00,000. Goods repossessed (installments due `20,000) valued at `5,000 which has not been included in the Stock at Shop at the end of the year. Case 5: If cash received from hire purchasers amounted to `6,00,000. Goods purchased during the year amounted to `6,00,000. Goods repossessed (installments unpaid `20,000 of which `14,000 were overdue) valued at `5,000 which has not been included in the Stock at Shop at the end of the year. Q 13.Y sold a color TV set to X on 01-01-2001 on hire purchase basis for `9,200. X paid `2,000 immediately and agreed to pay the balance in 12 equal monthly installments; each installment is due on last day of each month. X paid six installments successfully but was not able to pay other installments. In September 2001 before the monthly installment becomes due Y repossessed the TV set. The set was valued at `3,500. Show necessary ledger accounts in the books of Y if he follows Stock on Debtor System.