HirePurchaseAndSaleTransactionsPart2

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Hire Purchase and

Installment Sale Transactions

Part 2

IPCC Paper 1 Accounting Chapter 11

Prof. Deepak Jaggi

The Institute 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 views expressed hereinmay not be taken to necessarily represent the views of the Council or any of itscommittees

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) To Lay a foundation of accountingtreatment for Ascertainment of Profit

(2) To gain the ability to solveproblems relating to final accounts

(3) Understand to prepare the HPTrading A/c

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Ascertainment of Profit Stage

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

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H. P. Trading A/c

Prepared to find out gross profit inH.P. Transactions

Profit /Loss A/c

GeneralTrading A/c

H. P. Trading Method

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H.P.

TradingA/c

Cost of the goodssent on H.P.

H.P. Sales

H.P. Stock

Stock Reserve

RepossessedStock

Steps

C

S

S

S

R

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Cost of Goods Sent on H.P.

It is cost price and not cashprice

No. of units sent / sold x Costper unit

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Part of Sales

Due inCurrent Year

Whether

moneyreceived ornot

H.P. Sales

Contd. ICAI, 2013


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Formulae for H.P. Sales

Down payment x+ installment received x

x

+ Installment still to be received x

H.P. Sales x

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Part of Sales

Not due in thecurrent year

H.P. Stock

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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 X

H.P. Stock X

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UnrealizedProfit

Included inH.P. Stock

Stock Reserve

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Re-PossessedStock Vendor takes the

product back

Either at AgreedValue

Or at Cost of UnpaidInstallments of

Repossessed Stock

Repossessed Stock

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Model of H.P. Trading Account

Particulars Particulars

To Op. HP Stock

To Goods sent on HP

To Stock Reserve

To Gross Profit

X

X

X

X

By Stock Reserve (op.)

By HP Sales

By HP Stock

By Repossessed Stock

X

X

X

X

XXX XXX

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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

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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

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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

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Question No.1Krishna 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 ondelivery 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 withregard to the products:

Product Nos.

Purchased

Nos.

Sold

under CPS

Nos. sold

under

HPS

Cost per

unit

No. of

installme

nts due

during the

year

No. of

installme

nts

received

during the

year

TV Sets

Washing

Machine

90

70

20

20

60

40

16,000

12,000

1,080

840

1,000

800Cont. ICAI, 2013


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Particulars

Rent

SalariesCommission to Salesman

Office Expenses

1,20,000

1,44,00012,000

1,20,000

The following were the expenses during the year

From the above information , you are required to prepare:

(a) Hire Purchase Trading Account, and

(b) Trading and Profit & Loss A/c

Question No.1 cont

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To Op. HP Stock

To Goods sent on H.P.

To Stock reserve

To G. P. c/d

-

14,40,000

4,62,000

7,98,000

By Stock Res. (Op.)

By H.P. Sales

By H.P. Stock

By Repossessed Stock

-

1710000

9,90,000

-

27,00,000 27,00,000

Solution No.1

H.P. Trading A/c

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Solution 1 Cont..

General Trading A/c

To Opening Stock

To Purchases (Total)

TV 90x16,000

Wash 70X12,000

To GP c/d

--

14,40,000

8,40,000

140,000

By Sales

TV 20x2000 4,00,000

Wash 20x15000 3,00,000

By Goods sent on H.P.

By Closing Stock

TV 10x16,000 160000

Wash 10x12,000 120000

7,00,000

14,40,000

2,80,000

24,20,000 24,20,000

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Profit /Loss A/c

To Rent

To Salaries

To Commission

To Office Exp.

Net Profit c/d

1,20,000

1,44,000

12,000

1,20,000

5,42,000

By G.P. B/d

HPS

CPS

7,98,000

1,40,000

9.38,000 9,38,000

Solution 1 Cont..

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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

No. of Installments

Amount of case in

30

1,000

30

750

Solution 1 Cont..

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

TV Washing Machine

Number of units sent /sold

(x) Cpu

60

16,000

40

12000

9,60,000 4,80,000

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Working Notes :- (3) Calculation of the H. P. Sales

(+) Installments received TV Washing Machine

No.

Amount

1000

1000

800

750

10,00,000 6,00,000

(+) Installments to be

received

No.

Amount

80

1000

40

750

80,000 30,000

Total 10,80,000 6,30,000

17,10,000

Solution 1 Cont..

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Working Notes :- (4) Calculation of HP Stock

TV Washing Machine

Number of units sent(x)HP Price 6030,000 4022,500

H.P. Price of goods sent

(-) HP Sales

(Due in current year)

18,00,000

1080000

9,00,000

6,30,000

7,20,000 2,70,000

9,90,000

Solution 1 Cont..

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(5) Calculation of Stock Reserve

T. V.

Cost + Total Profit = H.P. Price

16,000+ x = 30,000

Profit = 14,000

HP Stock 7,20,000 ?

30,000 14,000= 3,36,000

Washing Machine

Cost + Total Profit = H.P. Price

12,000+ x = 22,500

Profit = 10,500HP Stock 22,500 10,500

2,70,000 ?

? = 1,26,000

Total : 1,26,000 + 3,36,000 = 4,62,000

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Lesson Summary

Steps to prepare HP Trading A/c

Cricket Khelo You Know What ?

Accounting Entries

Questions and Solutions

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Thank you

HirePurchaseAndSaleTransactionsPart2

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