Hire purchase system.doc

Hire Purchase System Problem 1: Shri Bipin purchased a Bajaj scooter on hire purchased system from Arun Auto. The total cash price of the scooter is Rs. 15980, payable Rs. 4000 at the time of agreement on 1 st January 2005 and the installment of Rs. 6000. Rs. 5000, and Rs. 2000 payable at the end of the first, second and third year respectively. Interest is charged at 5% p.a. Rate of depreciation is 10% p.a. on straight line method. You are required to give necessary journal entries and ledger accounts in the books of Shri Bipin and Arun Auto. Problem 2: On 1st January, 1998 M/s Bajaj Trading Co. purchased a machine on hire purchased system from M/s Jay Engineering Co. the present cash price of the machine is Rs. 101000. The hire purchase agreement provides that Rs. 16000 shall be paid at the time of delivery and balance must be paid by four half yearly installments of Rs. 26300 each. Interest being calculated at 18% p.a. assuming that 10% depreciation by straight line method is being written of every year on the cash value of the machine. Write ledger accounts in the books of both the companies. Books are closed on 31 st March every year. Problem 3: On 1st January, 1998, Mr. Shekhar purchased a motorcycle on hire purchase system from Aditya Agencies. The cash price of the motorcycle was Rs. 54000. Mr. Shekhar agreed to pay to the Aditya Agencies Rs. 12000 on signing the agreement. The payments were to be made in four quarterly installments of Rs. 12000 each. The first installment was to be paid on 31 st March 1998. The rate of interest is 20% p.a. depreciation is to be charged at 10% p. a. on diminishing balance. Show motorcycle A/c, Aditya Agencies A/c, and interest A/c in the books of Mr. Shekhar and Mr. Shekhar A/c in the books Aditya agencies. Books are closed on 31 st December every year. Problem 4: Mr. Karan purchased a colour Television from M/s Gandhi and Sons on Hire purchase system, on 15 th July, 2001, paying cash Rs. 15000 immediately and agreeing to pay six, monthly installments of Rs. 2150 each at the end of every month. The first installment is to be paid on 31 st July, 2001. The cash price of the T.V. is Rs. 13500. M/s Gandhi and sons charges interest at 24% p.a. Mr. Karan writes off 12%every year as depreciation on the diminishing balance method. Mr. Karan has paid first four installments regularly but he could not pay the fifth installment on the due date. He paid the fifth installment in addition Rs. 120 as penalty with the last installment. Books are closed on 31st March every year. Prepare: i) T. V. A/c, M/s Gandhi and sons A/c and interest A/c in the books of Mr. Karan. ii) Mr. Karan A/c in the books of M/s Gandhi and sons (calculations to be made to the nearest rupee.)

Problem 5: Nagpur Company purchased motorcar from Mumbai co. on Hire purchase system on 1 st April 1992, paying cash Rs. 96000 immediately and agreeing to pay three further yearly installments as follows: (1) Rs. 121600, (2) Rs. 109000, (3) Rs. 99462 each on 31 st March of every year. The cash price of the

motorcar was Rs. 357600. The Mumbai Co. charges interest at 15% p. a. the Nagpur Co. writes of 10% every year as depreciation on the diminishing balance method. Books are closed on 31 st March every year. Give necessary ledger accounts in the books of Nagpur Co. Problem 6: A colliery Ltd. agreed to purchase a machine from Bharat machines Ltd. on the hire purchase system for Rs. 46000. Rs. 6000 were paid when a machine acquired on 1 st Jan, 1998, and the balance was to be paid by five annual installments of Rs. 8000 plus interest at 5% p.a. A colliery Ltd depreciates the machine each year by 10% on the original cost. Show machine A/c and Bharat machines A/c in the books of colliery Ltd. Problem 7: Purchaser M/s. Prashant & Co. Vender M/s. Nakul & Co. Date of agreement 1.1.1991 Purchase system Hire purchase Article Machine Mode of payment: On agreement Rs. 24000 Three annual installments Rs. 25600, Rs. 35600, Rs. 33000 Rate of interest 10% p.a. Annual rate of depreciation 10% on the diminishing balance method Write Vender A/c and machine A/c in the books of M/s Prashant & co. and also write M/s Prashant & Co. A/c in the books of M/s Nakul & Co. Make calculations to the nearest rupee. Problem 8: m/s. Akash printing press purchases a printing machine from M/s Abhay Engineering Co. on hire purchase basis. Agreement was entered into in 1 st July 1999. Hire purchase price of machine was agreed to be paid in four quarterly installments of Rs. 40000, Rs. 20000, Rs. 15000 and Rs. 35000 respectively. First installment was to be paid on 30th Sept, !999. M/s Abhay Engineering Co. charges interest @ 12% p.a. on unpaid amount. M/s Akash Printing Press charges depreciation at 20% p. a. on diminishing balance of the printing machine. Interest is to be calculated quarterly. The books of accounts are closed on 31st Dec every year. Prepare interest A/c in the ledger of M/s Akash Printing Press giving journal entries in the books of M/s Abhay Engineering Co. Problem 9: On 1st Jan 1999 a Ltd Co. buys on hire purchase system some tools for Rs.25500 payable by three equal installments combining principal and interest, the latter being a normal rate of 5% p.a. The present value of an Annuity of one Rupee for three years at 5% is Rs. 2.72325. Calculate the cash price and find out the interest for each year.

Problem 10: Gaurang and Co. purchased a T.V. set on hire purchase basis for Rs. 20000 and makes the payment in the following order: Rs. Down payment 4000 1st installment after one year of the agreement 8000 nd 2 installment after two years of the agreement 4000 3rd installment after three years of the agreement 4000 The cash price of the T.V. set is Rs. 17600. Guarang & Co. depreciates T.V. @ 10% on cash price annually. Prepare the necessary ledger accounts in the books of Guarang & Co. Make calculations to the nearest rupee. Repossession of Asset Problem 11: Sagar purchased a machine from M/s Prayag & Co. for Rs. 56000. Payment to be made Rs. 15000 down and three installments of Rs. 15000 each at the end of each year. Rate of interest is charged at 5% p.a. Sagar depreciates machine at 10% p.a. on written down value method. Because of financial difficulties Sagar, after having paid down payment and first installment at the end of first year, could not pay second installment and M/s Prayag & Co. took possession of the machine. M/s Prayag & Co. after spending Rs. 350 on repairs of the machine sold it for Rs. 30110. Show the ledger accounts in the books of both the parties. Problem 12: Mr. Arun purchased a moped from Nagpur Trading Co. on 1 st April 1996. The terms of payment are four annual installments of Rs. 6000 each at the end of the financial year. First installment was to be paid on 31st March 1997. Interest is charged @ 20% p.a. and is included in the annual payment of Rs. 6000. Mr. Arun charged depreciation at 10% by straight line method. Mr. Arun fails to pay the installment due on 31 st March 1999. Nagpur Trading Co. obtained the permission of the court to repossess the moped as a result of default by Mr. Arun and having completed all the statutory requirements took possession of the moped. On 31 st May 1999 Nagpur Trading Co. after spending Rs. 250 on repairs of the moped sold it away for Rs. 12000. Prepare necessary ledger accounts in the books of purchaser and vender. Problem 13: On 1st Jan 1998, Akash acquired furniture on the hire purchase system from Singh Trading Co. agreeing to pay four half yearly installments of Rs. 975 each commencing on 30 th June 1998. The cash price of the furniture was Rs. 3000. Interest was chargeable at 24% p.a. It was agreed that in the event of default Akash should pay a sum of Rs. 1200. On 31st Dec 1998 on the eve of the payment of installment Akash expresses his intention to terminate the agreement. The goods were repossessed by Singh Trading Co. and the necessary payment was made by Akash in accordance with the provisions of Hire Purchase Act 1972. Singh Trading Co. valued the repossessed furniture at Rs. 1500 and incurred an expenditure of Rs. 200 for repairs and varnishing. The furniture was sold on 31 st Jan1999 at Rs. 1900.

Show necessary ledger accounts in the books of Singh Trading Co. assuming that the Co. passes hire purchase transactions through its books at sales. Part Repossession Problem 14: Prasad purchased four motorcycles of Rs. 14000 each on hire purchase system from M/s Gandhi and sons. The hire purchase price for all the four vehicles was Rs. 60000, to be paid Rs. 15000 down and three installments of Rs. 15000 each at the end of each year. Interest is charged at 5% p. a. Prasad depreciates vehicles at 10% p.a. on straight line method. After having paid down payment and first installment, Prasad could not pay second installment and M/s Gandhi and sons took possession of three vehicles at an agreed value to be calculated after depreciating vehicles at 20% p.a. on written down value method. One vehicle is left with Prasad. M/s Gandhi and sons, after spending Rs. 1200 on repairs, sold away all the three vehicles to Mrs. Pooja for Rs. 35000. Open ledger accounts in the books of both the parties. Problem 15: Handa Transport Co. purchased two trucks costing Rs.120000 each from Kamal Auto Ltd. on 1 st Jan 1997 on the hire purchase system. The terms were: Payment on delivery Rs. 30000 for each truck. Remainder in three equal installments together with interest at 10% p.a. to be paid at the end of each year. Handa Transport Co. wrote off 25% depreciation each year on the diminishing balance method. Handa Transport Co. paid the installments due on 31 st Dec 1997 and on 31st Dec 1998 but could not pay the final installment. Kamal Auto Ltd. repossessed truck adjusting its value against the amount due. The repossession was done on the basis of 30% depreciation on the diminishing balance method. Prepare ledger accounts in the books Handa Transport Co. showing the above transactions.