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

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

2 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

3 Ascertainment of Profit Stage H. P. Trading A/c Method Stock & Debtors Method

4 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

5 Steps H.P. Trading A/c Cost of the goods sent on H.P. H.P. Sales H.P. Stock Stock Reserve Repossessed Stock C S S S R

6 Cost of Goods Sent on H.P. It is cost price and not cash price No. of units sent / sold x Cost per unit

7 H.P. Sales Part of Sales Due in Current Year Whether money received or not Contd.

8 Formulae for H.P. Sales Down payment x + installment received x x + Installment still to be received x H.P. Sales x

9 H.P. Stock Part of Sales Not due in the current year

10 Formulae for H.P. Stock Total H. P. Price of Goods sent on H. P. X (-) H. P. Sales X (-) Unpaid Installment on Repossessed Stock X x H.P. Stock X

11 Stock Reserve Unrealized Profit Included in H.P. Stock

12 Repossessed Stock Re-Possessed Stock Vendor takes the product back Either at Agreed Value Or at Cost of Unpaid Installments of Repossessed Stock

13 Model of H.P. Trading Account Particulars 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 XXX

14 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

15 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

16 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

17 Question No.1 Krishna Agencies started business on 1 st April, During the year ended 31 st 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 31 st March, 2007 with regard 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 ,000 12,000 1, , Cont.

18 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

19 Solution No.1 H.P. Trading A/c To Op. HP Stock - By Stock Res. (Op.) - To Goods sent on H.P. 14,40,000 By H.P. Sales 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

20 Solution 1 Cont.. General Trading A/c To Opening Stock To Purchases (Total) TV 90x16,000 Wash 70X12,000 To GP c/d -- By Sales TV 20x2000 4,00,000 14,40,000 Wash 20x ,00,000 7,00,000 8,40, ,000 By Goods sent on H.P. By Closing Stock 14,40,000 TV 10x16, Wash 10x12, ,80,000 24,20,000 24,20,000

21 Solution 1 Cont.. 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 By G.P. B/d HPS CPS 7,98,000 1,40,000 1,20,000 5,42, ,000 9,38,000

22 Solution 1 Cont.. Working Notes :- (1) Details of the amount of installments Cost +25% Case Price +50 % TV 16,000 4,000 20,000 10,000 Washing Machine 12,000 3,000 15,000 7,500 H.P. Price 30,000 22,500 No. of Installments Amount of case in 30 1,000 Working Notes :- (2) Calculation of the cost of goods sent on H. P. Number of units sent /sold (x) Cpu TV 60 16, Washing Machine ,60,000 4,80,000 14,40,000

23 Solution 1 Cont.. Working Notes :- (3) Calculation of the H. P. Sales (+) Installments received TV Washing Machine No. Amount (+) Installments to be received No. Amount ,00,000 6,00, ,000 30,000 Total 10,80,000 6,30,000 17,10,000

24 Solution 1 Cont.. Working Notes :- (4) Calculation of HP Stock Number of units sent (x)hp Price TV 60 30,000 Washing Machine 40 22,500 H.P. Price of goods sent (-) HP Sales (Due in current year) 18,00, ,00,000 6,30,000 7,20,000 2,70,000 9,90,000

25 (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 = 10,500 HP Stock 22,500 10,500 2,70,000?? = 1,26,000 Total : 1,26, ,36,000 = 4,62,000

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

27 Thank you Prof. Deepak Jaggi

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