Hire Purchase and Installment Sale Transactions: IPCC Paper 1 Accounting Chapter 11 Prof. Deepak Jaggi

Recording Date: May 24, 2013

Hire Purchase Purchase and Installment Sale Transactions Part 2 IPCC Paper 1 Accounting Chapter 11 Prof. Deepak Jaggi

© The Institute of Chartered Accountants of India

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Learning Objectives

(1) To Lay a foundation of accounting treatment for Ascertainment of Profit (2) To gain the ability to solve problems relating to final accounts (3) Understand to prepare the HP Trading A/c

Ascertainment of Profit Stage

H. P. Trading A/c Method Stock & Debtors Method

H. P. Trading Method Profit / Loss A/c

H. P. Trading A/c Prepared to find out gross profit in H.P. Transactions

General Trading A/c

Steps   c    /    A   g   n    i    d   a   r    T  .    P  .    H

Cost of the goods sent on H.P.

C

H.P. Sales

S

H.P. Stock

S

Stock Reserve Repossessed Stock

S

R

Cost of Goods Sent on H.P. It is cost price and not cash price

No. of units sent / sold x Cost per unit

H.P. Sales Part of Sales

Due in Current Year Whether money received or not

Contd.

Formulae for H.P. Sales Down payment + installment received

x

+ Installment still to be received x H.P. Sales

x x x

H.P. Stock

Part of Sales

Not due in the current year

Formulae for H.P. Stock Total H. P. Price of Goods sent on H. P.

X

(-) H. P. Sales

X x

(-) Unpaid Installment on Repossessed Stock H.P. Stock

X X

Stock Reserve

Unrealized Profit Included in H.P. Stock

Repossessed Stock

Re-Possessed Stock

Either at Agreed Value

Vendor takes the product back

Or at Cost of Unpaid Installments of Repossessed Stock

Model of H.P. Trading Account Particulars

₹ 

To Op. HP Stock

X By Stock Reserve (op.)

X

To Goods sent on HP

X By HP Sales

X

To Stock Reserve

X By HP Stock

X

To Gross Profit

X By Repossessed Stock

X

XXX

Particulars

₹

XXX

Entries (1) For Goods sent on H. P. Cost (a) H. P. Trading A/c …. Dr. To Goods sent on HP (b) Goods sent on HP…. Dr. To General Trading A/c

Entries (2) For H.P. Sales H.P. Sales A/c ….. Dr. To H.P. Trading A/c

(3) For H.P. Stock H.P. Stock A/c …… Dr. To H.P. Trading A/c

Entries (4) For Stock Reserve • HP Trading A/c …… Dr. • To Stock Reserve

(5) For Repossessed Stock • Repossessed Stock A/c …. Dr. • To HP Trading A/c

Question No.1 Krishna Agencies started business on 1st  April, 2006. During the year ended 31st  March, 2007, they sold under mentioned durables under two schemes. Cash Price Scheme (CPS) and Hire Purchase Scheme (HPS) Under the CPS they prices the goods at cost plus 25% and collected it on delivery Under the HPS, the buyers were required to sign a Hire Purchase Agreement Undertaking to pay for the value of the goods including finance charges in 30 installments, the value being calculated at Cash Price plus 50%. The following are the details available at the end of 31st March, 2007 with regard to the products: Product

TV Sets Washing Machine

Nos. Purchased

Nos. Sold under CPS

Nos. sold under HPS

Cost per unit

90

20

60

16,000

1,080

1,000

70

20

40

12,000

840

800

₹

No. of No. of installme installme nts due nts during the received year during the year

Question No.1 cont… The following were the expenses during the year Particulars Rent Salaries Commission to Salesman Office Expenses

₹

1,20,000 1,44,000 12,000 1,20,000

From the above information , you are required to prepare: (a) Hire Purchase Trading Account, and (b) Trading and Profit & Loss A/c

Solution No.1 H.P. Trading A/c

To Op. HP Stock To Goods sent on H.P.

- By Stock Res. (Op.)

-

14,40,000 By H.P. Sales

1710000

To Stock reserve

4,62,000 By H.P. Stock

9,90,000

To G. P. c/d

7,98,000 By Repossessed Stock 27,00,000

27,00,000

Solution 1 Cont.. General Trading A/c To Opening Stock

-- By Sales

To Purchases (Total) TV

90x16,000

Wash

70X12,000

To GP c/d

TV 14,40,000 Wash

20x2000

4,00,000

20x15000 3,00,000

8,40,000 By Goods sent on H.P.

7,00,000 14,40,000

140,000 By Closing Stock

24,20,000

TV

10x16,000 160000

Wash

10x12,000 120000

2,80,000 24,20,000

Solution 1 Cont..

Profit /Loss A/c To Rent

1,20,000 By G.P. B/d

To Salaries

1,44,000 HPS

7,98,000

12,000 CPS

1,40,000

To Commission To Office Exp.

1,20,000

Net Profit c/d

5,42,000 9.38,000

9,38,000

Solution 1 Cont.. Working Notes :- (1) Details of the amount of installments TV

Washing Machine

Cost +25%

16,000 4,000

12,000 3,000

Case Price +50 %

20,000 10,000

15,000 7,500

H.P. Price

30,000

22,500

30 1,000

30 750

No. of Installments ∴ Amount of case in

Working Notes :- (2) Calculation of the cost of goods sent on H. P.

Number of units sent /sold (x) Cpu

TV

Washing Machine

60 16,000

40 12000

9,60,000

4,80,000

14,40,000

Solution 1 Cont.. Working Notes :- (3) Calculation of the H. P. Sales (+) Installments received No. Amount

TV

Washing Machine

1000 1000

800 750

10,00,000

6,00,000

80 1000

40 750

80,000

30,000

10,80,000

6,30,000

(+) Installments to be received No. Amount

Total

17,10,000

Solution 1 Cont.. Working Notes :- (4) Calculation of HP Stock

Number of units sent (x)HP Price H.P. Price of goods sent (-) HP Sales (Due in current year)

TV

Washing Machine

60 30,000

40 22,500

18,00,000 1080000

9,00,000 6,30,000

7,20,000

2,70,000 9,90,000

(5) Calculation of Stock Reserve T. V. Cost + Total Profit = H.P. Price 16,000+ x = 30,000 ∴ Profit = 14,000 7,20,000 ∴ HP Stock 30,000

? 14,000 =

3,36,000

Washing Machine Cost + Total Profit = H.P. Price 12,000+ x = 22,500 ∴ Profit = 10,500 22,500 10,500 ∴ HP Stock 2,70,000 ? = 1,26,000 ∴? ∴ Total : 1,26,000 + 3,36,000 = 4,62,000

Lesson Summary

Steps to prepare HP Trading A/c Cricket Khelo – You Know What ?  Accounting Entries Questions and Solutions

Thank you