HirePurchaseAndSaleTransactionsPart1

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Hire Purchase and

Installment Sale Transactions

Part 1

IPCC Paper 1 Accounting Chapter 11

Prof. Deepak Jaggi

The Insti tute of Chartered Accountants of India

Recording Date: May 24, 2013


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1 This lecture has been delivered by faculty members to supplement the

Study Material, Practice Manual and other content

2 The views expressed in this lecture are of the Faculty Member.

3

The content of this video lecture has not been specifically discussed

by the Council of the Institute or any of its Committees and the viewsexpressed herein may not be taken to necessarily represent the viewsof the Council or any of its committees

Disclaimer Statement

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The e-Lectures, PPT, Podcastsand Video lectures on ICAI

Cloud Campus aim tosupplement the Study Material,

Practice Manual and

Supplementary Study Material

The lecture recordings are madeaccording to the syllabus andlaws existing/ applicable as on

the date of recording.

Due to changes in law, there islikely to be some time gap

between these changes and therecording of updated lectures.

Hence, students are advised torefer to the Study Material

including Supplementary StudyMaterial, if any, and other

relevant legislation for latestprovisions/ amendmentsrequired for forthcoming

examination.

Important Notes This e-Lecture was Recorded on:May 24, 2013

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Learning Objectives

(1) Understand the meaning of HirePurchase

(2) Usefulness in Practical Life

(3) Understand the various terms used

(4) Understand the meaning of

Repossession

(5) To Lay a foundation of accountingtreatment

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Hire Purchase Meaning

It is one ofSystem of

Sales

Make DownPayment

Get TheDelivery of

Assets

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Balance payment over aperiod of time in form of :

Installments

Meaning Continued

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Terms

Cash Price

Original SellingPrice

ExcludingInterest

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Down payment

Spot payment

To get thedelivery

Down Payment

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Interest

Charges

For

deferredpayments

Interest

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Installment = Principal + Interest

Periodical Payment Period of Time

Installments

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HP Price

DownPayment + AllInstallments

Cash Price +Total Interest

HP Price

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Continued

Repossession

Vendortakes theproduct back

Due to non

payment ofinstallments

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Types of Repossession

Complete/ Total

Partial

Types of Repossession

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Types of Questions

Journal &Ledger Final Accounts

RecordingStage

Ascertainmentof Profit

Types of Questions

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Recording Stage

PreparePaymentSchedule

Mainly to findout INTEREST

for eachInstallment

Recording Stage

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Question No. 1

(1) Cash Price

(2) Down Payment

(3) Installments

(4) Rate of Interest

1,49,000

40,000

40,000 /

each 3 annual installments

5% p.a.

From the following particulars, calculate interest payable in each

year by hire purchase customer.

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Answer 1 Payment Schedule

Cash Price Installments

Principle Interest

(-) Down Payment

1,49,000

40,000 40,000 0

Balance 1,09,000

First Installment40,000

(-) Int. 5,450

Balance

34,550

74,450

34,550 5,450

Second Installment

40,000

(-) Int. 3,723Balance

36,27738,173

36,277 3,723

Last Installment

40,000

(-) Cash Price 38,173

Interest 1,827 38,173 38,173 18271,49,000 11,000

Answer

1

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Entries Recording Stage

Books of Hire Purchaser

Total Assets Method

Assets A/c . Dr. (CashPrice)

To Vendors A/c

(1) ForAgreement

Vendors A/c Dr.

To Cash / Bank A/c(2) For Down

Payment

Interest A/c . Dr.

To Vendors A/c

(3) ForInstallment Due

Interest PartContd..

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Vendors A/c .. Dr.

To Cash / Bank A/c

(4) For InstallmentPaid

P+I

Depreciation A/c . Dr.

To Asset A/c

(5) ForDepreciation

% on Cash Price

Profit &Loss A/c . Dr.

To Interest A/c

To Depreciation A/c

(6) For Transfer

Entries -Continued

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E t i R di St


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Books of Hire Purchaser

Interest Suspense Method

All other entries will be same, except for the 1stand 3rdentry will be different as

compared to total asset method.

For Agreement : Asset A/c . Dr. (Cash Price)

Interest Suspense A/c ... Dr.(Total Interest)

To Vendors A/c (H. P. Price)

(3) For Installment due (Interest Part)

Interest A/c .. Dr.

To Interest Suspense A/c

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Books of Vendor

Credit Sales Method

Hire Purchaser A/c. Dr.

To Sales A/c(1) For

Agreement

Cash / Bank A/c Dr.

To Hire Purchaser A/c(2) For Down

Payment

Hire Purchasers A/c . Dr.

To Interest A/c

(3) ForInstallment Due

Interest Part

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Entries Conti..

Cash /Bank A/c .. Dr.

To Hire Purchaser A/c

(4) For InstallmentReceived

P+I

No Entry

(5) ForDepreciation

(A) Interest A/c . Dr.

To Profit & Loss A/c

(B) Sales A/c.. Dr.

To Trading A/c

(6) ForTransfer

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Books of Vendor Interest :Suspense

MethodAll other entries will be same, except for the 1stand 3rdentry will be different as compared tocredit Sales method.

For Agreement :

Hire Purchaser A/c . Dr. (H.P Price)

To Sales A/c (Cash Price)

To Interest Suspense A/c (Total Interest)

(3) For Installment due (Interest Part) Interest Suspense A/c .. Dr.

To Interest A/c

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Lesson Summary

Types of Questions

1) Recording Stage

Journal & Ledger

Questions of all types

Terms:-

Cash Price

Down Payment

Interest

Instalments

HP Price

Repossession

HP is a system of sales,where pay some moneynow and remaining in theform of instalment

CashPrice

NoInterest

HPPrice

AlwaysInterest

Installments

AlwaysInterest

DownPaymen

t NoInterest

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Thank you

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HirePurchaseAndSaleTransactionsPart1

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