Q.1. Cash price of assets purchased hire-purchase system Rs.

37,500
Down payment Rs. 5,000
Annual installment : 5 of Rs. 7,500 each
Rate of interest : 5% Calculation interest included in each installment.
Que. 2 A Ltd purchased a machinery from B Ltd, on hire purchase basic on the following terms:
(a) Cash Price- Rs 7,92,500 (b) Cash Down payment -20% (c) Balance to be discharged
In four annual instalments of Rs 2,00,000 each (inclusive of interest @ 10%) to be paid at the end of each year.
Required: Compute the payment of interest to be made each year.
Que. 3 A. Ltd, purchased a machinery on hire purchases basis from B. Ltd on the following terms:
(a) Cash Price- Rs 7,92,500, (b) Cash Down Payment 20%, (c) Balance to be discharged In four equal instalments together
with interest @ 10% p.a. to be paid at the end of each year.
Required: Compute the payment of interest to be made each year.
Que. 4 On 1st Jan 20X1, A Ltd, purchased a machine from B Ltd on hire purchase basis on the following terms:
(a) Cash Price Rs 7,92,500 (b) Cash Down Payment 20% (c) Four annual equal instalments of Rs 2,00,000 each to be paid at
the end of each year.
Required: Compute the amount of interest pertaining to each accounting year assuming
(a) that the sales were made at the beginning of the year, and (b) that the sales were made uniformly throughout the year.
Que. 5 A Ltd Purchased a machine on hire purchase basis from B Ltd on the following terms:
(a) Cash Down Payment Rs 1,58,500 (b) Four Instalment of Rs 2,21,900, Rs 2,06,050, Rs 1,90,200 & Rs 1,74,350 at the end of
the 1st year, 2nd year, 3rd year, 4th year respectively. (c) The Payment of cash price in each instalment Uniform.
Required: Compute the amount of Interest.
Que. 6 A Ltd. purchased a machinery for B Ltd on hire purchases basis on the following terms:
(a) Cash Down Payment 20% (b) Balance to be discharged In four annual instalments of Rs 2,00,000 each (inclusive of
interest @ 10% p.a.) commencing from the end of first year from the date of down pay ment .
Required: Compute the Cash Price.
Que. 7 A Ltd purchased a machine from B Ltd on hire purchases basic on the following terms:
(a) Down Payment Rs 2,00,000 (b) Three biannual instalments of Rs 2,00,000 each commencing from the end of 2
year from the date of down payment (c) Interest to be charged by vendor 10% p.a.
Compute the Cash price (a) if the vendor charges interest at yearly rests (b) if the vendor charges interest at two yearly rests.
Que. 8 A Ltd. purchased a machine from B Ltd. on hire purchase basis on the following terms;
(a) Down Payment 20% (b) Four half yearly Instalments of Rs 2,00,000 each (inclusive) of interest @ 10% p.a) commencing
from the end of 6 months from the date of down payement.
Compute the Cash Price (a) if the vendor charges interest at half yearly rest (b) if the vendor charges interest at yearly rest.

Que. 10 If in Problem 7.8, the interest is to be calculated on yearly rest, what shall be Cash Price?
Solution :
Statement Showing the Computation of Cash Price and Periodic
Interest Under Working Backward Method
A
B
C
D=B+C
E
3rd
Nil
12,600
12,600
600
1st & 2nd
12,000
31,280
43,280
3,935
Let the Cash Price = X
IPCC- Accounts
Hire Purchase System

F=DE
12,000
39,345

Page1

Que. 9 A Ltd, purchase a machinery on hire purchases basis from B Ltd on the following terms:
(a) Cash Down Payment 33-1/3/% (b) Three half yearly instalments of Rs 16,400, Rs 14,880 and Rs 12,600, the first to
commence at the end of 6 months from the date of cash down payment. (c) Interest to be charged by the vendor 10% p.a.
calculated on half yearly rests.Required: Compute the Cash Price of the Machine.

X = Rs 39,345 + 33 1/3% of X
X = 39,345 / 66 2/3% = Rs 59,017.50
Que. 11 A Ltd. purchased a machine from B Ltd on hire purchases basis on the following terms:
(a) Cash Down payment 20%.(b) Three instalments of Rs 2,00,000 each at the end of the first year, third year, and sixth year (c)
Interest to be charged by vendor at 10% p.a. Required: Compute the Cash Price of the Machine.
Solution:
Under Present Value Method
Let denoteX = Cash Price, I = Instalment r = Rate of Interest (in fraction)
Balance to be discharged = Cash Price less Down Payment = X less 20% X = 80% of X
I1 + I2 + I3
(1 + r)1 (1 + r)3 (1 + r)6
80% of X = 2,00,000 + 2,00,000 + 2,00,000
(1+0.1)
(1 + 0.1)3 (1 + 0.1)6
1
1 +
1
80% of X = 20,00,000
+
(1 + 0.1) 1 (1 + 0.1) 3 (1 + 0.1) 6
= 2,00,000 (0.909 + 0.751 + 0.564)
80% of X = 2,00,000 2.224 = Rs 4,44,800
X = Rs 4,44,800 100/80 = Rs 5,56,000
80% of X =

Que. 12 A Ltd Purchased a machine from B Ltd on the purchases basis on the following terms:
(a) Cash Down Payment 20% (b) There instalment of Rs 1,10,000, Rs 1,10,000, Rs 2,66,200 and Rs 5,31,468 at the end of the
first year, third year and sixth year respectively. (c) Interest to be charged by the vendor at 10% pa. Required: Compute the Cash
Price of the Machine.
Solution:
Under Present Value Method
Let us denote X = Cash Price I = Instalment r = Rate of Interest (in fraction)
Balance to be discharged = Cash Price less Down Payment = X less 20% X = 80% of X
80% of X = I1
+ I2
+ I3
(1 + r)1 (1 + r)3 (1 + r)6
80% of X = 1,10,000 + 2,66,200 +5,31,458
(1+0.1)
(1 + 0.1)3 (1 + 0.1)6
= 1,10,000 (.909) + 2,66,200 (.751) + 531,468(.564)
= Rs 99,990 + Rs 1,99,916 + Rs 2,99,748
= Rs 5,99,654
X = Rs 5,99,654 100/80 = Rs 7,49,568
Que. 13 A Ltd purchased a machine on hire purchase basis from B Ltd, on the following terms:
(a) Original Cost Rs 7,92,466 (b) Cash Down payment 20%, (c) Balance to be discharged in four annual equal instalments
(inclusive of interest at 10% p.a) to be paid at the end of each year. Required: Compute the amount of Instalment.
Que. 14 A Ltd. purchased a machinery on hire purchase basis from B Ltd on the following terms:
(a) Original cost Rs 6,97,370 (b) Balance to be discharged In 4 annual equal instalments (inclusive of interest at 10% p.a.) to
be at the beginning of each year; Required: Compute the amount of Instalement.,

Question 16: - On 1.1.1979, Rajib delivered to Arup a machine on Hire Purchase system. Rs. 5,000 being paid on delivery and
the balance in 5 instalments of Rs. 5,000 each, payable on 31 st December every year. The cash price of the machine
was Rs. 25,000. Show the Machinery Account and Rajibs Account in the books of Arup assuming that the closes his
books on 31st December every and rate of depreciation is @ 10% p.a. on Diminishing Balance Method.
IPCC- Accounts
Hire Purchase System

Page2

Que. 15 A Ltd purchased a machinery on hire-purchase basis on the following terms:

(a) Original Cost Rs 7,08,276 (b) Cash Down Payment 16-2/3% (c) Balance to be discharged in 4 annual instalments
(inclusive of interest at 10% p.a.) to be paid at the end of each year in such a way that the amount of instalment goes on
decreasing by Rs 10,000 each year. Required: Compute the amount of instalment for each year.

Question 17: - On 1.1.1977, Sharma purchased a plant from Ahuja on hire purchases system. The hire purchase rate was
settled at Rs. 60,000 payable as to Rs. 15,000 on 1.1.1977 and Rs. 15,000 at the end of three successive years. Interest
was charged @ 5% p.a. The asset was to be depreciated in the books of the purchaser at 10% p.a. on Reducing Balance
Method. Given the present value of an annuity of Re. 1 p.a. @ 5% interest is Rs. 2.7232. Show the Vendors Account
and the Plant Account in the books of the purchaser. All calculations are to be made to the nearest rupee.
Question 18: - On 1.1.1981. Somenath Majumdar purchased one machine from Machineries Ltd. on Hire purchase System and
paid Rs. 4,000 on signing the agreement. Subsequently three other instalments of Rs. 2,600, Rs. 2,400 and Rs. 2,200
were paid at the end of First, Second and Third year, respectively, to pay off the cash price of the machine along with
arrear interest accruing from year to year.
Ascertain the cash price of the machine and the total amount of interest to be paid assuming that each instalment
consists of equal part of capital sum plus the interest on unpaid capital. Prepare also the Machineres Ltd. Account in the
books of Somenath Majumdar.
Question 19: - Coconut Growers purchase a machinery on instalment basis from Y Machinery Co. Ltd. on the following terms.
(a) Cash down payment at time of signing agreement Rs. 12,000.
(b) Five annual instalments of Rs. 7,700, the first to commence at the end of 12 months from the date of Cash down
payment.
(c) Interest @ 10% p.a. is charged by the seller.
(d) Depreciation @ 20% p.a. on WDV basis is written off machinery.
(e) Machinery is sold for Rs. 15,000 on the completion of payment of interests. Show the Machinery Account for
the entire period.

Full Practical Problems

Question 1: - On 1.1.1979, M/s. Tallboy & Co. Ltd. took delivery from Plain Vans Ltd. of 5 Motor Vans on a Hire Purchase
System. Rs. 2,000 being paid on delivery and the balance in five instalments of Rs. 3,000 each, payable annually on
31st December. The vendor company charges 5% interest p.a. on yearly balances. The cash value of 5 Motor Vans was
Rs. 15,000.
Show Journal entries and the Vendors Account. Interest Account and the Motor Vans Account in the books
of M/s. Tallboy & Co. Ltd. for five years under (i) Assets Accrual Method; (ii) Credit Purchase with Interest Method,
and (iii) Interest Suspense Method Provide depreciation @ 20% on the diminishing balances. Adjust any difference in
fifth years account.

Question 3: - Transport Corporation purchased a truck on hire purchase from Hindustan Motors for Rs. 56,000, payments to
be made. Rs. 15,000 down cash and 3 instalments of Rs. 15,000 each at the end of each year. Rate of interest is charged at 5%
p.a. Buyer depreciates assets at 10% p.a. on written down value method.
Because of financial difficulties Transport Corporation after having paid the down cash and the first instalment at the
end of the first year could not pay the second instalment and Hindustan Motors took possession of the truck. The seller Hidusthan
Motors after spending Rs. 350 on repairs of the truck, sold it for Rs. 30,110.
Prepare (i) the Truck Account and the Selers Account in the books of the buyer Transport Corporation and (ii) the purchasers
Account and Goods on Hire Purchase Returned Account in the books of Hindusthan Motors.
IPCC- Accounts
Hire Purchase System

Page3

Question 2: - On 1.1.1978, Ashok acquired Furniture on the Hire Purchase System from Real Aids Ltd. agreeing to pay four
semi annual instalments of Rs. 800 each, commencing on 30.6.1978. The cash price of the items was Rs. 3,010 and an interest
of 5% p.a. was chargeable.
On 30.9.1978, Ashok express his inability to continue and Real Aids seized the property. It was agreed that Ashok
would pay the due proportion of the instalment up to the date of seizure and also a further sum of Rs. 200 towards depreciation.
At the time of re possession. Real Aids Ltd. valued the Furniture at Rs. 1,500.
The company after incurring Rs. 200 towards repairs of the Furniture sold the items for Rs. 1,800 on 15 th October, 1978.Show the
ledger accounts as they would appear in the books of Real Aids Ltd. working out the profit or loss on the transactions, assuming
that the company passes Hire Purchase transactions through its books as sales.

Question 4: - X Transport Ltd. purchased from Delhi Motors Ltd. 3 Tempos costing Rs. 50,000 each on the Hire purchase
System on 1.1.1987. Payment was to be made Rs. 30,000 down and the remainder was payable in 3 equal instalments together
with interest @ 9% p.a. at the end of each year. X Transport Ltd. writes off depreciation @ 20% p.a. on diminishing balance. It
paid the instalment due at the end of the first year, but could not pay the next. Hence, the Tempos were seized by the vendors, but
after negotiation, X Transport Ltd. was allowed to retain one Tempos on the condition that the value of the other two would be
adjusted against the amount due. These two Tempos were valued on the basis of 30% depreciation annually. Show the Tempo
Account and Delhi Motors Ltd. Account in the books of X Transport Ltd. for the years 1987, 1988, 1989.
Question 5: - Bombay Roadways Ltd. purchased three Truck costing Rs. 1,00,000 each from Hindusthan Auto Ltd. on 1.1.1979
on the Hire Purchase System. The terms were:
Payment on delivery Rs. 25,000 for each Truck and balance of the principal amount by 3 equal instalments
plus interest at 15% p.a. to be paid at the end of each year.
Bombay Roadways Ltd. write off 25% depreciation each year on the Diminishing Balance Method.
Bombay Roadways Ltd. paid the instalments due on 31 st Dec. 1979 and 31st Dec. 1980, but could not pay the final
instalment.
Hindusthan Auto Ltd. re possessed two Trucks adjusting values against the amount due. The re- possession was done on
1.1.1982 on the basis of 40% depreciation on the Diminishing Balance Method. You are required to:
(1) Write up the ledger accounts in the books of Bombay Roadways Ltd. showing the above transactions upto 1.1.1982, and
(2) Show the discloser of the balances arising from the above in the Balance Sheet of Bombay Roadways Ltd. as on 31.12.1991.

Question 21: - A machinery is sold on hire purchase. The terms of payment is four annual instalments of Rs. 6,000 the end of
each year commencing from the date of agreement. Interest is charged @ 20% and is included in the annual payment of
Rs. 6,000. Show Machinery Account and Hire Vendor Account in the book of the purchaser who defaulted in payment
of the third yearly payment where upon vendor re possessed the machinery. The purchaser provides depreciation on
the machinery @ 10% p.a.
Que. 22 On 1st April 1989, a Motor Transport Co., ordered a motor vehicle whose cash price was 2,50,000 and entered into a hire
purchases agreement to pay eight quarterly instalments of Rs 36,740 each, the first payment to be made on 30 th June, 1989. The
rate of interest in 15% per annum and the vehicles are to be depreciated at 10% per annum on the diminishing balance. Show the
motor vehicles account in the books of the hire purchaser for the two years, ended 31 st March, 1991.
Que. 23 Shyam purchases a T.V. set on hire purchase basis for Rs 5,000 and makes the payment in the following ordere:
Down payment
Rs. 1,000
1st instalment after one year of the agreement
Rs. 2,000
2nd instalment after two years of the agreement
Rs. 1,000
3rd instalment after three years of the agreement
Rs 1,000
The Cash Price of the T.V. Set is Rs 4,400.
Prepare the necessary ledger accounts in the books of hire vendor.

Que. 25 On 1st October, 1989 five trucks were purchased by A on the hire purchases system. The cash price of each truck is Rs
5,50,000. The payment was to be made as follows:
20% of cash price down.
25% of cash price at the end of each of the 4 subsequent half years.
IPCC- Accounts
Hire Purchase System

Page4

Que. 24 On 1st February, 1989 Delhi Motors Co., sold on hire purchases basis to Mrs. Satya, a car whose cash price was Rs
1,00,000. The terms of the contract were as follows:
(i)
Rs 40,000 to be paid immediately on the signing of the contract.
(ii)
The balance in three annual instalments (payable on 31st January) of Rs 20,000 plus yearly interest due @
18% per annum on outstanding balances remaining after each payment.
On 31st January 1991, Mrs. Satya failed to pay the instalment and hence Delhi Motors Co., took possession of the car
which was valued at Rs 44,480. In February, 1991, the company spent Rs 1,300 in cash for materials and Rs 680 worth of factory
labour was used to make the car ready for resale. On 12th March, 1991, the car was sold for Rs 50,000.
Delhi Motors Co., closes its books of account every year on 31 st March. Prepare the following accounts in its ledger:
(i)
The account of Mrs. Satya, the customer
(ii)
Repossessed Goods Account.

The payment due on 30th September, 1990, could not be made and hence trucks were seized buy the vendor but, after
negotiations, A was allowed to keep three trucks on the condition that the value of the other two tucks would be adjusted against
the amount due, the trucks being valued at cost less 25% depreciation. As books are closed on 31 st March each year and he
charges 15% depreciation on trucks on the original cost.
The vendor spent Rs 60,000 on getting the trucks thoroughly overhauled and sold them for Rs 9,50,000. Show the
various accounts in the books of both the parties.
Que. 26 On 1st April, 1989 Jolly Tourist Transport Co., took three cars of the cash sale price of Rs 1,00,000 each on hire
purchase system from Tata Motors Ltd. The terms of the hire purchases contract include a total cash down payment of Rs 75,500
and the payment of the remaining cash price of the cars in three equal annual instalments together with interest @b 18% per
annum on outstanding balances, the instalment with interest being payable on 31 st March every year.
First year dues were duly paid but thereafter the hire vendee failed. Consequently, Tata Motors Ltd. served notice for
repossession of the cars. But after negotiations. Tata Motors Ltd. agreed to leave one car with the hire purchases and adjust the
value of the other two cars against the outstanding amount. Jolly Tourist Transport Co. provided depreciation at 20% per annum
on diminishing balances but Tata Motors Ltd. took back the two car, valuing them on the basis of 25% annual depreciation on
straight line basis. The hire vendor sold the repossessed cars for a total sum of Rs 1,40,000 after spending Rs 25,000 to renovate
the cars. You are required to prepare the necessary ledger accounts in the books of both the parties on the assumption that they
close their books of account on 31st March every year.

Question 31: On 1st July, 1988 X Ltd. bought from Y Ltd. a plant whose cash price was Rs. 37,170; payment to be made by four half
yearly instalments of Rs. 10,000; the first one being due on 31 st Dec. 1988. Interest had been taken into account at 3%
per half year. A clause in the agreement gave the vendors the right to seize the plant if the purchaser defaulted on any
instalment.
X Ltd. paid the first instalment but failed to pay the next. Negotiations resulted in agreement that X Ltd.
should retain plant of which the original cash price was Rs. 16,000 and bear the loss on the remainder (which was sold
on 3rd July, 1989 for Rs. 19,000), Y Ltd. waiving the interest accruing after 30 th June, 1989 included in the instalments
under the original agreement. Another agreement was entered into for the liquidation of the balance.
Show the Plant Account, the Vendor Account and the Plant Surrendered Account in the books of X Ltd. from
1st July 1988 to 30th June 1989 taking depreciation at 5% p.a. half yearly on the reducing balance assuming that X Ltd.
makes up its accounts half yearly to 30th June and 31st December.

Question 32: Sumana T.V. Ltd. manufacture a T.V. set for Rs. 3,000 and sell it on cash as well as on hire purchase system. The
cash price of each set being Rs. 4,000 whereas the hire purchase price is Rs. 5,600 payable by four half yearly
instalments of Rs. 1,400 each, the 1st instalment becomes due at the end of six months. The sets are to be repaired free
of cost for two years. Past experience shows that Rs. 600 is the cost of repairs of what Rs. 200 is for the 1 st year. During
1985, 50 sets were sold for cash and 200 sets were sold on hire purchase basis. The actual cost of repairs in 1985 was
Rs. 35,000 in 1986 Rs. 60,000 and in 1987 Rs. 45,000. Show the entries, Cash Book and Maintenance Suspense
Account assuming that the books are closed at the end of each year and all instalments are received in them.
Solution:
Allocation of Interest:
Total amount of interest:
IPCC- Accounts
Hire Purchase System

Page5

Post-Sale Service
Generally, the vendors provide free after sales service to the customers for a specified period and an estimated cost is
loaded on the price of the goods for such services. Since the amount is received by the vendor for this purpose in advance, a
separate account is to be opened known as Maintenance Suspense Account, or Repairs Reserve Account or Service Charges
Account. This amount is to be debited for the actual amount of expenses incurred for the purpose and the balance of this account
represents profit or loss. But, when such service contract is extended more than one year, the total service charges are to be
allocated against the different related years and each years actual expenses is to be compared with the actual amount so allocated
for that year. If the actual amount of such charges is, however, less than the estimated amount, the excess to be carried forward
until the period of maintenance is over. On the contrary, if there is any deficit (i.e. excess of actual amount over estimated
figures) that should be provided for.

Interest per set Rs. 1,600 (Rs. 5,600 m Rs. 4,000)

Total Interest = Rs. 1,600 200 = Rs. 3,20,000.
Interest will be allocated by four installment in proportion of 4 : 3 : 2 : 1. (i.e., by Inverse Progress Method)
Interest on 31.12.1985
Interest on 30.6.1986
Interest on 31.12.1986
Interest on 31.6.1987

=
=
=
=

Rs. 3,20,000 4/10 =

Rs. 3,20,000 3/10 =
Rs. 3,20,000 2/10 =
Rs. 3,20,000 1/10 =

1,28,000
96,000
64,000
32,000

Allocation of Maintenance
Per Set
Rs.
1985: From 1.7.1985 : 200 = 100
1986 : From 1.1.1986 to 30.6.1986 : 200 = 100
From 1.7.1986 to 31.12.1986 : 400 = 200
1987 : From 1.1.1987 to 30.16.1987 : 400 = 200

300

Total Sets
Sold
250
250

Total amount
Rs.
25,000
75,000

250

50,000

Question 33: - M/s Mamta purchases from Ashok Ltd. 3 machines costing Rs. 50,000 each on the hire-purchase system.
Payment was to be made Rs. 30,000 down and the remainder on 3 equal installments together with interest @ 9%. M/s
Mamta had written off Depreciation @ 20% on diminishing balance. It paid the installment due at the end of the first
year but could not pay the next. Ashok Ltd. agreed to leave one machine with the purchaser, adjusting the value of the
other two machines against the amount due. The machine taken back were valued on the basis of 30% depreciation
annually. Show the necessary accounts in the book of M/s Mamta for two years.
Solution:
Calculation of Interest
Cash price
Principal
Interest
Rs. (installment)
(instalment)
1,50,000
Paid on delivery
30,000
30,000
1,20,000
1st Installment
40,000
Add: Int. @ 9% on 1,20,000
10,800
40,000
40,000
10,800
2nd Installment (not paid)
40,000
80,000
Int. @ 9% on 80,000
7,200
Total amount due on the date of default:Cash price
80,000
Interest
7,200
87,200
Less: Value of 2 machines returned
(Rs. 1,00,000 less Dep. @ 30% for 2 years)
49,000
38,200
First Method (Assets Accrual Method)

To Ashok Ltd. (Vendors)

To Ashok Ltd. (Vendors)

Year II

To Balance b/d
To Ashok Ltd. (Amt. due at the time of
returning machine)

Year I

To Bank A/c

78,200
Ashok Limited
Rs.
30,000 Year I

By Dep. (20% on Rs. 1,50,000)

Balance c/d
By Dep. (20% on Rs. 1,20,000)
By P & L A/c (bal. fig)
By Balance c/d (one machine less 20%
Dep. for two year)

By Machinery A/c

IPCC- Accounts
Hire Purchase System

Rs.
30,000
40,000
70,000
24,000
22,200
32,000
78,200
Rs.
30,000

Page6

Year I

Machinery Account
Rs.
30,000 Year I
40,000
70,000
40,000 Year
II
38,200

Year II

To Bank A/c

50,800

To Balance c/d

80,800
38,200

By Machinery A/c
By Interest A/c
Year
II

40,000
10,800
80,800

By Machinery A/c
Add: Interest

80,000
7,200

87,200
Less: Mach. Retd

49,000

38,200

38,200

38,200

Second Method (Total Asset Value Method)

(2)
(3)

(4)

To Ashok Ltd.

Year II

To Balance b/d

Year I

To Bank A/c
To Bank A/c
To Balance c/d

Year II

To Machinery A/c (retd)

To Balance c/d

Rs.
30,000
1,20,000
1,50,000
24,000
49,000
15,000
32,000
1,20,000
Rs.
1,50,000
10,800
1,60,800
80,000
7,200
87,200

Question 34: On 1.1.2001 Ravi, a television dealer, bought 5 television sets from LG Television Co. on hire-purchase. The cash price of each
set was Rs. 20,000. It was agreed that Rs. 25,000 should be paid immediately and the balance in three installments of Rs. 30,000
each at the end of each year. The TV Co. charges interest @ 10% p.a. The buyer depreciates television sets at 20% p.a. on the
diminishing balance method.
Ravi paid cash down and two installments but failed to pay the last installment. Consequently, the TV Co. repossessed
three sets, leaving two sets with the buyer and adjusting the value of 3 sets against the amount due. The sets repossessed were
valued on the basis of 30% depreciation p.a. on the written down value. The sets repossessed were sold by the TV Co. for Rs.
30,000 after necessary repairs amounting to Rs. 5,000 on 30th June 2004. Open the necessary ledger account in the books of both
the parties.
Solution
Working Notes:
Total Interest = Hire Purchase Price Cash Price
= [Rs. 25,000 + (Rs. 30,000 3)] Rs. 20,000 5)
= Rs. 1,15,000 Rs. 1,00,000 = Rs. 15,000
Interest for 3rd year = Rs. 15,000 Rs. 7,5000 Rs. 5,250 = Rs. 2,250
Agreed Value of 3TV repossessed on the basis of depreciation @ 30% p.a.
Rs.
A
Cost (Cash price) of 3 TV Sets
60,000
B
Less: Depreciation @ 305 p.a. for 3 years
[ Rs. 18,000 + Rs. 12,600 + Rs. 8,820]
39,420
20,580
Book value of 3 TV repossessed on the basis of depreciation @ 20% p.a.
A
Cost (Cash price) of 3 TV Sets
60,000
B
Less: Depreciation @ 20% WDV for 3 years
[Rs. 12,000 + Rs. 9,600 + Rs. 7,680]
29,280
IPCC- Accounts
Hire Purchase System

Page7

(1)

Year I

Machinery Account
Rs.
1,50,000 Year I By Dep. A/c (20% on 1,50,000)
By Balance c/d
1,50,000
1,20,000 Year
By Depreciation A/c
II
(20% on 1,20,000)
By Ashok Ltd. (value of 2 machines
returned after 30% dep. for two years)
By P & L A/c (Bal fig)
By Balance c/d
(one machine after 2 years. Dep. @ 20%)
1,20,000
Ashok Limited
Rs.
30,000 Year I By Machinery A/c
50,800
By Interest A/c
50,000
1,60,800
49,000 Year
By Balance b/d
38,200 II
By Interest A/c
87,200

30,720
= Book value Agreed Value = Rs. 30,720 Rs. 20,580 = Rs. 10,140
In the Books of LG Television Co.
Goods Repossessed Account
Particulars
Rs. Particulars
To Ravi
20,580 By Cash A/c
To Cash A/c (Repairs)
5,000
To Profits & Loss A/c (Profit)
4,420
30,000

(5) Loss on default

Rs.
30,000

30,000

Question 36: From the following particulars, prepare Hire Purchase stock Account, Hire purchase debtors Account, Goods Repossessed
Account and Hire Purchase Adjustment Account:
Cost/unit
Rs. No. of installments due on units other than
Cash price/unit
2,000 repossessed (customers still paying):
30
Cash down payment/unit
Rs. No. of installments collected on units other than
Monthly installment/unit
2,400 repossessed:
400
No. of Installment/units
Rs. 400
No. of units sold on hire purchase basis
Rs. 200
During the year 4 units on each of which 5
12
installments had been collected were repossessed.
120
After reconditioning at a cost of Rs. 1,000, these
unit were sold outright for Rs. 8,000
Solution:
Hire Purchase Stock Account
Particulars
Rs Particulars
Rs
To Goods sold on H.P. A/c
3,36,000 By Hire Purchase A/c
1,43,600
By Balance c/d
1,92,400
3,36,000
3,36,000
IPCC- Accounts
Hire Purchase System

Page8

Question 35: TV Housing sold a TV set to X on hire purchase system on 1.1.2001 for Rs. 9,200. X paid Rs. 2,000 on the same date to receive
the delivery of the TV set and agreed to pay the balance in 12 equal monthly installments; each installment becoming due on the
last date of each month. X paid six installments in time but failed to pay other installments. In Sept. 2001 (before the monthly
installment has become due) the seller repossessed the TV set the repossessed set was valued at Rs. 3,500.
Show the necessary ledger accounts (on the basis of Stock and Debtor system) in the books of TV House.
Solution
Hire Purchase Stock Account
Particulars
Rs. Particulars
Rs.
To Balance b/d
----- By Hire Purchase Debtors A/c
6,800
To Goods sold on H.P. A/c
9,200 By Goods Repossessed A/c (600 4) (installment
not yet due)
2,400
By Balance c/d
----9,200
9,200
Hire Purchase Debtors Account
Particulars
Rs Particulars
Rs
To Balance b/d
----- By Cash A/c/Bank A/c (Rs. 2,000 + (Rs. 600 6)
5,600
To Hire Purchase Stock A/c
6,800 By Goods Repossessed A/c (600 2) (installment
due but not paid)
1,200
By Balance c/d
----6,800
6,800
Goods Repossessed Account
Particulars
Rs. Particulars
Rs.
To Hire Purchase Stock A/c
2,400 By Hire Purchase Adjustment A/c
100
To Hire Purchase Debtors A/c
1,200 By Balance c/d
3,500
3,600
3,600
Hire Purchase Adjustment Account
Particulars
Rs. Particulars
Rs
To Goods Repossessed A/c
100 By Goods sold on H.P. A/c (load on goods sold)
?

Hire Purchase Debtors Account

Rs. Particulars
1,43,600 By Cash Received:
Down Payment (120 Rs. 400)
Installment (420 Rs. 200)
By Goods Repossessed (28 Rs. 200)
By Balance c/d (Rs. 200 30)
1,43,600
Hire Purchase Adjustment Account
Particulars
Rs Particulars
To Stock Reserve A/c (loading on closing Stock)
54,971 By Goods Sold on Hire Purchase A/c (loading
To Goods Repossessed A/c
1,600 on Gods Sold)
To Goods Profit t/f to P&L A/c
42,429 By Goods Repossessed A/c (Profit on sales)
99,000
Goods Repossessed Account
Particulars
Rs Particulars
To Hire Purchase Debtors A/c
5,600 By H.P. Adjustment A/c
. By Balance c/d
.
To Balance b/d
5,600 By Bank A/c
To Bank A/c (expenses)
4,000
To Hire Purchase Adjustment A/c
1,000
3,000
8,000
Working Notes:
(1) Value of goods Repossessed = Cost/H.P. Price Unpaid Amount
= Rs. 2,000/Rs. 2,800 Rs. 5,600 = Rs. 4,000
Particulars
To Hire Purchase Stock A/c

(2) Stock Reserve on Closing Stock =

=

..

..
.2,800.2,000
.2,800

Rs
48,000
84,000
5,600
6,000
1,43,600
Rs
96,000
3,000
99,000
Rs
1,600
4,000
5,600
8,000

8,000

Installments not yet due

Rs. 1,92,400 = Rs. 54,971

Que 37:- AG Ltd sells product on hire purchase terms, the price being cost plus 33.33% and provides you the following
particulars for the year ended 31st March, 202.
01.04.201
31.03.202
Rs
Rs
Stock out on Hire
4,00,000
4,60,000
Stock at shop
50,000
70,000
Installments Due (Customers still paying)
30,000
50,000
Required: Prepare Hire Purchase Trading Account in each of the following alternative cases:
Case (a) If Cash received from hire purchaser during the year amounted to Rs 8,00,000;
Case (b) If Goods sold on hire purchase amounted to Rs 8,00,000;
Case (c) If the amount that fell due during the year amounted to Rs 8,00,000;
Case (d) If Goods purchased during the year amounted to Rs 8,00,000.
Solution: Case (a)
Hire Purchase Trading Account
Rs Particulars
By Hire Purchase Stock Reserve
4,00,000
[Rs 4,00,000 33.33/133.33]
30,000 By Bank A/c
8,80,000 By Goods Sold on Hire Purchase A/c
1,15,000
[Rs 8,00,000 33.33/133]
By Closing Balances:
2,05,000
Hire Purchase Stock
Hire Purchase Debtors
16,30,000

Working Notes:
IPCC- Accounts
Hire Purchase System

Rs
1,00,000
7,20,000
2,00,000
4,60,000
50,000
15,30,000

Page9

Particulars
To Opening Balance:
Hire Purchase Stock
Hire Purchase Debtors
To Goods Sold on Hire Purchase
To Hire Purchase Stock Reserve A/c
[Rs 4,60,000 33.33%/133.33]
To Profit t/f to General P&L A/c

(i)

Particulars
To Balance b/d
To Purchase (b.f)

Particulars
To Shop Stock A/c (b.f)
To Hire Purchase Trading A/c

Particulars
To Balance b/d
To Goods Sold on Hire Purchase

Particulars
To Balance b/d
To Hire Purchase Stock A/c

Shop Stock Account

Rs Particulars
50,000 By Goods Sold on Hire Purchase A/c
6,20,000 By Balance c/d
6,70,000
(ii)
Goods Sold on Hire Purchase Account
Rs Particulars
6,00,000 By Hire Purchase Trading A/c
2,00,000
8,00,000
(iii)
Memorandum Hire Purchase Stock Account
Rs Particulars
4,00,000 By Hire Purchase Debtors A/c (b.f)
8,00,000 By Balance c/d
12,00,000
(iv)
Memorandum Hire Purchase Debtors Account
Rs Particulars
30,000 By Bank A/c (b.f)
7,40,000 By Balance c/d
7,70,000

Rs
6,00,000
70,000
6,70,000
Rs
8,00,000
8,00,000
Rs
7,40,000
4,60,000
12,00,000
Rs
7,20,000
50,000
7,70,000

Que 38:- BG Ltd has a hire purchase department. Goods are sold on hire purchase at cost plus 50%. The following information is
provided for the year ending on 31st March 202:
01.04.201
31.03.202
Rs
Rs
Stock out with Hire Purchase Customers
Rs 90,000
?
Stock at shop
1,80,000
2,00,000
Installment Due (Customers still paying)
50,000
90,000
Required: Prepare Hire Purchase Trading Account in each of the following alternative cases:
Case (a) If Cash received from hire purchasers amounted to Rs 6,00,000 and Goods purchased during the year amounted to Rs
6,00,000.
Case (b) If Total amount that fell due during the year amounted to Rs 6,00,000 and Goods purchased during the year amounted
to Rs 6,00,000.
Case (c) If Cash received from hire purchasers amounted to Rs 6,00,000 and Goods sold on hire purchase at cost amounted to Rs
6,00,000
Case (d) If Cash received from hire purchasers amounted to Rs 6,00,000, Goods purchased during the year amounted to Rs
6,00,000. Goods repossessed (Installments due Rs 20,000) valued at Rs 5,000 which have not been included in the stock at shop
at the end.
Case (e) If Cash received from hire purchasers amounted to Rs 6,00,000, Goods purchased during the year amounted to Rs
6,00,000. Goods repossessed (installments unpaid Rs 20,000 of which Rs 14,000 were overdue) valued at Rs 5,000 which have
not been included in the Stock at shop at the end.
Solutions:Case (d)
Hire Purchase Trading Account
Rs Particulars
By Hire Purchase Stock Reserve
90,000
[Rs 90,000 50/150]
50,000 By Bank A/c
8,70,000 By Goods Sold on Hire Purchase A/c
1,00,000
[Rs 8,70,000 50/150]
By Goods Repossessed A/c
2,05,000
[At Revalued Figure]
By Closing Balances:
IPCC- Accounts
Hire Purchase System

Rs
30,000
6,00,000
2,90,000
5,000

Page10

Particulars
To Opening Balances:
Hire Purchase Stock
Hire Purchase Debtors
To Goods Sold on Hire Purchase
To Hire Purchase Stock Reserve A/c
[Rs 3,00,000 50/150]
To Profit t/f to General P&L A/c

Hire Purchase Stock

Hire Purchase Debtors
13,15,000

3,00,000
90,000
13,15,000

Working Notes:
(i)

Particulars
To Shop Stock A/c
To Hire Purchase Trading A/c

Particulars
To Balance b/d
To Goods Sold on Hire Purchase

Particulars
To Balance b/d
To Hire Purchase Stock A/c

Shop Stock Account

Rs Particulars
1,80,000 By Goods Sold on Hire Purchase A/c
6,00,000 By Balance c/d
[Excluding Good Repossessed]
7,80,000
(ii)
Goods Sold on Hire Purchase Account
Rs Particulars
5,80,000 By Hire Purchase Trading A/c
2,90,000
9,60,000
(iii)
Memorandum Hire Purchase Stock Account
Rs Particulars
90,000 By Hire Purchase Debtors A/c
8,70,000 By Balance c/d (b.f)
9,60,000
(iv)
Memorandum Hire Purchase Debtors Account
Rs Particulars
50,000 By Bank A/c
6,60,000 By Goods Repossessed A/c
By Balance c/d
7,10,000

Rs
5,80,000
2,00,000
7,80,000
Rs
8,70,000
8,70,000
Rs
6,60,000
3,00,000
9,60,000
Rs
6,00,000
20,000
90,000
7,10,000

Que 39:- Mr India sells goods on hire purchase basis. He fixes hire purchase price by adding 50% to the cost of the goods. The
following are the figures relating to his hire purchase business for the year ending on 31 st March 202:
01.04.201
31.03.202
Rs
Rs
Hire Purchase Stock
12,000
?
Hire Purchase Debtors
300
?
Shop Stock
10,000
15,000
Goods Purchased during the year Rs 65,400. Cash received from customers during the year Rs 92,400. Total amount of
installments that fell due during the year Rs 92,700.
One customer to whom goods had been sold for Rs 1,200 paid only 5 installments of Rs 100 each. On his failure to pay
the monthly installment of Rs 100 each on 4th March 202, the goods were repossessed on 27th March 202 after due legal
notice.
Required: Prepare the Hire Purchase Trading Account.
Solution:
Hire Purchase Trading Account
Particulars
Rs Particulars
Rs
To Opening Balances:
By Hire Purchase Stock Reserve
4,000
Hire Purchase Stock
12,000
[Rs 12,000 50/150]
Hire Purchase Debtors
300 By Bank A/c
92,400
To Goods Sold on Hire Purchase
90,600 By Goods Sold on Hire Purchase A/c
30,200
To Hire Purchase Stock Reserve A/c
3,100
[Rs 90,600 50/150]
[Rs 9,300 50/150]
By Goods Repossessed A/c
467
To Profit t/f to General P&L A/c
30,867
[At Revalued figure]
By Closing Balances:
Hire Purchase Stock
9,300
Hire Purchase Debtors
500
1,36,867
1,36,867
IPCC- Accounts
Hire Purchase System

Page11

Particulars
To Balance b/d
To Purchases

Working Notes:
(i)

Particulars
To Balance b/d
To Purchases

Particulars
To Shop Stock A/c
To Hire Purchase Trading A/c

Particulars
To Balance b/d
To Goods Sold on Hire Purchase

Particulars
To Balance b/d
To Hire Purchase Stock A/c

Shop Stock Account

Rs Particulars
10,000 By Goods Sold on Hire Purchase A/c
65,400 By Balance c/d
75,400
(ii)
Goods Sold on Hire Purchase Account
Rs Particulars
60,400 By Hire Purchase Trading A/c
30,200
90,600
(iii)
Memorandum Hire Purchase Stock Account
Rs Particulars
12,000 By Hire Purchase Debtors A/c
90,600 By Goods Repossessed A/c
By Balance c/d (b.f)
1,02,600
(iv)
Memorandum Hire Purchase Debtors Account
Rs Particulars
300 By Bank A/c
92,700 By Goods Repossessed A/c
By Balance c/d (b.f)
93,000

Rs
60,400
15,000
75,400
Rs
90,600
90,600
Rs
92,700
600
9,300
1,02,600
Rs
92,400
100
500
93,000

Working Note:
Calculation of the value of Goods Repossessed Value Goods Repossessed

..
800
1,200

Unpaid Amount (whether due or not)

Rs 700 = Rs 467

Que 40:- Goods amounting to Rs 1,55,997 at hire purchase price were sold on hire purchase system. The hire-vendor normally
sells goods at retail price showing a gross profit of 30% on that price. But when goods are sold on hire-purchase, he adds 5 per
cent to retail price to cover additional risk. During the year goods costing Rs 10,500 were repossessed for non-receipt of any
payment on them. These goods were valued at cost on 31 st March. Cash received from customers amount to Rs 63,000.
Required: Prepare Hire Purchase Trading Account for the year ending on 31 st March, 202, so that profits to be taken into
account is such proportion of the profits as installments due bear to the total goods sold on hire-purchase.
Solution:
Hire Purchase Trading Account
Particulars
Rs Particulars
Rs
To Opening Balances:
By Bank A/c
63,000
Hire Purchase Stock
-- By Goods Sold on Hire Purchase A/c
51,999
Hire Purchase Debtors
-[Rs 1,55,997 35/105]
To Goods Sold on Hire Purchase
1,55,997 By Goods Repossessed A/c
10,500
To Hire Purchase Stock Reserve A/c
25,749 By Closing Balances:
[Rs 77,247 35/105]
Hire Purchase Stock
77,247
To Profit t/f to General P&L A/c
21,000
Hire Purchase Debtors
-2,02,746
2,02,746
Working Notes:
(i)
Memorandum Hire Purchase Stock Account
Particulars
Rs Particulars
Rs
To Balance b/d
-- By Hire Purchase Debtors A/c
78,750
To Goods Sold on Hire Purchase
1,55,997 By Balance c/d (b.f)
77,247
1,55,997
1,55,997
(ii)
Memorandum Hire Purchase Debtors Account
Particulars
Rs Particulars
Rs
IPCC- Accounts
Hire Purchase System

Page12

To Balance b/d
To Hire Purchase Stock A/c

(iii)

-78,750

By Bank A/c
By Goods Repossessed A/c
[Rs 10,500 105/70]
By Balance c/d

78,750
Calculation of Hire Purchase Price etc.
(a) If Normal Retail Price = Rs 100, Gross Profit will be Rs 30 and cost will be Rs 70.
(b) Hire Purchase Price = Normal Retail Price + Additional Profit = 100 + 5 = 105
(c) Profit on Hire Purchase Price = Normal Profit + Additional Profit = 30 + 5 = 35

63,000
15,750

78,750

Q 42. Prakash started business on 1st April, 2001. During the year ending on 31st March, 2002 its total purchases amounted to
Rs. 52,540 and sales excluding hire purchase transactions amounted to Rs. 63,900. The following are the details of H.P
transactions:
Articles
Cost
Sale price
Deposit
Monthly installment
No. of installments paid in 20012002
Phone set
400
600
100
20 of Rs. 25
8
Motor Cycle
1,500
2,400
400
10 of Rs. 200
4
Refrigerator
2,000
2,800
400
12 of Rs. 200
2
The installments on the refrigerator could not be kept up and it was returned on 26th March, 2002. Stock in hand on 31st
March 2002 excluding the returned refrigerator was valued at Rs. 7,210.
Prepare the Hire Purchase Trading Account and the General Trading Account
Solution
General Trading A/c
[For the year ending on 31st March, 2002]
Particulars
Rs Particulars
Rs
To
Purchases
By Sales
63,900
52,540
48,640 By Closing Stock
7,210
Less:
Sold
on
H.P.
22,410
3,900
To Gross Profit
71,110
71,110
Hire Purchase Trading Account
[for the year ending on 31st March, 2002]
Particulars
Rs Particulars
Rs
To goods sold on H.P.
5,800 By Cash:
To Stock Reserve
550 Down Payment
900
To Gross Profit
778 Installments
1,400
2,300
By Hire Purchase Stock at the end
1,500
By Goods Repossessed (Cost equivalent)
1,428
By Goods on H.P. (Loading)
1,900
7,128
7,128
Working Notes:
Total Installments
Installments collected
Installment not due or unpaid
Phone set
500
200
300
Motor cycle
2,000
800
1,200
Refrigerator
2,400
400
2,000
Unrealised profit of installments not due = Installments not due

..
..

Q 43 . The Hire Purchase department of X Ltd. sells TV set and Room coolers. This department was newly started in 2001. The
relevant information is as follows:
TV Set
Room Coolers
Cost
Rs. 5,400
Rs. 2,000
Cash Price
Rs. 6,300
Rs. 2,400
Cash down payment
Rs. 900
Rs. 400
Monthly installment
Rs. 600
Rs. 200
IPCC- Accounts
Hire Purchase System

Page13

Phone Set = Rs. 300 Rs. 200/600 = Rs. 100, Motor Cycle = 1,200 Rs. 900 / Rs. 2,400 = Rs. 450
Cost Equivalent on Refrigerator = Rs. 2,000 Rs. 2,000 / Rs. 2,800 = Rs. 1,428

10

12

During the year, 100 TV sets and 120 Room cooler were sold on hire purchase basis. Two TV sets on each of which 3
installments only could be collected and 4 Room coolers on each of which 5 installments had been collected were repossessed.
These were valued at Rs. 10,000 after reconditioning at a cost of Rs. 1,000. These were sold outright for Rs. 14,000. Other
installments collected and those due (customers still paying) were respectively was follows:- TV set 270 and 20, Room coolers
400 and 30
Prepare accounts on Stock and Debtors system to reveal the profit of the Department.
Solution:
Hire Purchase Stock Account
Particulars
Rs Particulars
Rs
To Goods sold on Hire Purchase A/c
10,26,000 By Hire Purchase Debtors A/c (total installment
4,19,600
due)
By Balance c/d (installments not yet due)
6,06,400
10,26,000
10,26,000
Hire Purchase Debtors Account
Particulars
Rs Particulars
Rs
To Hire Purchase Stock A/c
4,19,600 By Bank A/c (Down payment)
1,38,000
By Bank A/c (Installments)
2,49,600
By Goods Repossessed A/c (installments due
14,000
on repossessed goods)
By Balance c/d
18,000
4,19,600
4,19,600
Goods Repossessed Account
Particulars
Rs Particulars
Rs
To Hire Purchase Debtors A/c
14,000 By H.P. Adjustment A/c (b.f)
5,000
By Balance c/d
9,000
14,000
14,000
To Balance b/d
9,000 By Bank A/c /Cash A/c
14,000
To Bank (expenses)
1,000
To Hire Purchase Adj. A/c (Profit)
4,000
14,000
14,000
Goods sold on Hire Purchase Account
Particulars
Rs Particulars
Rs
To H.P. Adjustment A/c (loading)
2,46,000 By Hire Purchase Stock A/c
10,26,000
To Purchases
7,80,000
10,26,000
10,26,000
Hire Purchase Adjustment Account
Particulars
Rs Particulars
Rs
To Goods Repossessed A/c (Loss)
5,000 By Goods sold on Hire Purchase (Loading)
2,46,000
To Stock Reserve A/c (90,000 + 54,971)
1,44,971 By Goods Repossessed (Profit on sales)
4,000
To Profit
1,00,029
2,50,000
2,50,000
Working Notes:
(1) Calculation of H.P. Price, Cost Price and Loading on Goods sold on Hire Purchase
T.V Set
R. Cooler
Total
A. Units sold
100
120
----B. H.P. Price/Unit (Rs.)
6,900
2,800
----C. Cost Price/Unit (Rs.)
5,400
2,000
----D. Loading/Unit (Rs.)(B-C)
1,500
800
----E. Total H.P. Price (A B)
Rs. 6,90,000
3,36,000
10,26,000
F. Total Cost (A C)
Rs. 5,40,000
2,40,000
7,80,000
G. Total Loading (A D)
Rs. 1,50,000
96,000
2,46,000
(2) Calculation of Cash collected on Down Payment
T.V Set
R. Cooler
Total
A. Units Sold
100
120
----B. Down Payment/Unit
Rs. 900
Rs. 400
----C. Total Down Payment (A B)
Rs. 90,000
Rs. 48,000
Rs. 1,38,000
(3) Calculation of Cash collected on Installments
IPCC- Accounts
Hire Purchase System

Page14

Number of Installments

IA.
B.
C.
IIA.
B.
C.
III-

On Goods other than those Repossessed

No. of Installments collected
Installment/Unit
Total Amount (A B)
On Goods Repossessed
No. of Installments collected
Amount of Installment
Total Amount (A B)
On Total Transactions (I + II)

270
Rs. 600
Rs. 1,62,000

400
Rs. 200
Rs. 80,000

----------------

6
Rs. 600
Rs. 3,600
Rs. 1,65,600

20
Rs. 200
Rs. 4,000
Rs. 84,000

---------------2,49,600

Television
980
270
20
290
690
4,14,000

R. Cooler
1,392
400
30
430
962
1,92,400

(4) Calculation of Installments not yet due on Goods other than those repossessed
A.
B.

Total No. of Installments payable (on Goods other than those repossessed)
Less: (a) Installment collected
(b) Installment due but not paid

C. No. of Installment not yet due (A-B)

D. Amount of Installment not yet due
(5) Calculation of Stock Reserve on Closing Stock
Stock Reserve =
For Television =

..
..
.6,900.5,400

For Room Coolers =

Amount of Installments not yet due

Rs. 4,14,000 = Rs. 90,000

.6,900
.2,800.2,000
Rs .2,800

Rs. 1,92,400 = Rs. 54,971

Q 44 . M/s Delhi Electronics sells colour TVs., on hire purchase basis. Cost per set is Rs. 14,000. Cash sales price is Rs. 15,500
and hire purchase sale price is Rs. 16,800 for 12 monthly installments payable by 10 th of every month. However, the buyer has to
make cash down Rs. 1,800 at the time of purchase.
Hire Purchase transaction (No. of sets sold) 2005- Jan. 10, Feb. 12, March 10, April 12, May 10, June 10, July 10,
August 15, Sept. 11, Oct. 20, Nov. 20, Dec. 10.
Let us suppose all installments are duly collected. Show necessary Journal Entries.
Solution:
Various relevant accounting information in relation to hire purchase transactions are computed as follows:
Total No. of Transactions
:
150
Cash down
:
Rs. 1,800 150 = Rs. 2,70,000
Installments Collected / Due
Transactions
No. of Installments collected
No. of Installments Due
Jan.
10 100 = 110
10 1 = 10
Feb.
12 10 = 120
12 2 = 24
March
10 9 = 90
10 3 = 30
April
12 8 = 96
12 4 = 48
May
10 7 = 70
10 5 = 50
June
10 6 = 60
10 6 = 60
July
10 5 = 50
10 7 = 70
Aug.
15 4 = 60
15 8 = 120
Sept.
11 3 = 33
11 9 = 99
Oct.
20 2 = 40
20 10 = 200
Nov.
20 1 = 20
20 11 = 220
Dec.
-10 12 = 120
749
1051
Check:
Total installments for 150 hire purchase transactions are 1,800. (150 12) of which 749 installments fell due and collected and
the balance 1051 installments are not yet paid.
Amount collected for 749 installments
12

749 = Rs. 9,36,250

Page15

.16,800.1,800

Amount not yet due

.16,800.1,800
12

1,051 = Rs. 13,13,750

Cash Down = Rs. 2,70,000

IPCC- Accounts
Hire Purchase System

Hire Vendor should recognize the amount of installments collected and cash down value (i.e. Rs. 2,70,000 + Rs.
9,36,250) Rs. 12,06,250 as sale. Balance Rs. 13,13,750 is value of goods lying with the customer at hire purchase price. Stock
Reserve should be computed and deducted from such amount to show the Hire Purchase Stock at cost.
Goods lying with Hire Purchaser at Hire Purchase Price

..

= Rs. 13,13,750
Stock Reserve = (Rs. 13,13,750 10,94,792)

.14,000
.16,800

= Rs. 10,94,792
= Rs. 2,18,958
Journal Entries

(1) For Cash down at the time of

hire transaction

(3)

(4)

(5)

A/c

Rs.
2,70,000

Rs.
2,70,000

A/c

9,36,250
9,36,250

A/c

9,36,250
9,36,250

A/c

13,13,750
13,13,750

A/c

2,18,958
2,18,958

appear in the Balance Sheet as an asset

Q 45 . Delhi Traders Commences, Business in 2004 selling goods on hire-purchase basis on the following terms:
Cost
Selling Price
Deposit payable
Installments Payable
Rs. 2,000
Rs. 3,000
20%
12 Monthly
Monthly installments are payable on the last date of the month in which the sale takes place. Other details are:2004
2005
Sales
300 Nos.
600 Nos.
Installments Received
Rs. 3,75,000
Rs. 10,70,000
Sales take place evenly throughout the year. In 2005, 40 items sold in 2004 on which a total of 300 installments had
been received were repossessed.
Show ledger accounts for both the years in the books of Delhi Traders.
Solution:
Hire-Purchase Trading Account for the year ending 31st Dec., 2004
Particulars
Rs. Particulars
Rs.
To Goods Sold on Hire-Purchase
9,00,000 By Cash (3,75,000 + 1,80,000)
5,55,000
To H.P. Stock Reserve (1/3 of Rs. 3,30,000)
1,10,000 By Goods Sold on Hire-Purchase (Loading)
3,00,000
To Gross Profit
1,90,000 By Hire-Purchase Debtors
15,000
By Stock out on Hire-Purchase (at H.P. Price)
3,30,000
12,00,000
12,00,000
Hire-Purchase Trading Account for the year ending 31st Dec., 2005
Particulars
Rs Particulars
Rs
To Hire-Purchase Debtors
15,000 By Stock Reserve (opening)
1,10,000
To Stock out on Hire-Purchase (opening balance)
3,30,000 By Goods sold on Hire-Purchase
6,00,000
To Goods sold on Hire-Purchase
18,00,000 By Hire-Purchase Debtors
19,000
To Stock Reserve (1/3 of 6,60,000)
2,20,000 By Cash
14,30,000
To Gross Profit
4,78,000 By Goods Repossessed A/c (2/3 of 36,000)
24,000
By Stock out on Hire-Purchase
6,60,000
28,43,000
28,43,000
Hire-Purchase Debtors Account
Particulars
Rs Particulars
Rs
IPCC- Accounts
Hire Purchase System

Page16

(2)

Cash/Bank
Dr.
To Hire Purchase Sale A/c
When installments fall due
Installment
Due
Dr.
To Hire Purchase Sales
On collection of installments
Cash/Bank
Dr.
To Installment Due A/c
For Installment not due at the Hire
Purchase
Stock
year
Dr.
To Trading A/c
For Stock Reserve
Stock
Reserve
Dr.
To Hire Purchase Stock A/c
If some installments become due but not collected at the year end, such would
just like Sundry Debtors.

To Hire-Purchase Trading A/c

To Balance b/d
To Hire-Purchase Trading A/c

(3)

(1)

.
.
5,70,000
15,000
14,70,000

By Cash-Down Payment
-- Installments
By Balance c/d
By Cash-Down Payment
-- Installments
By H.P. Trading A/c
By Balance c/d

1,80,000
3,75,000
15,000
5,70,000
3,60,000
10,70,000
36,000
19,000
14,85,000

14,85,000
Working Notes:
2004
H.P. Sale Price 300 3,000 = Rs. 9,00,000.
Cost of goods sold being Rs. 2,000 and H.P. selling price being Rs. 3,000, Stock Reserve and profit included in selling price is
1/3 of the selling price and value of stock.
Details of sales in 2004: Sales p.m. 300/12 = 25 units
Installments Due
Units sold
Per unit in
Total in
Per unit in
Total in
2004
2004
2005
2005
Jan.
25
12
300
--Feb.
25
11
275
1
25
March
25
10
250
2
50
April
25
9
225
3
75
May
25
8
200
4
100
June
25
7
175
5
125
July
25
6
150
6
150
August
25
5
125
7
175
Sept.
25
4
100
8
200
Oct.
25
3
75
9
225
Nov.
25
2
50
10
250
Dec.
25
1
25
11
275
No. of Installments
1,950
1,650
Amt. of each Installment
Rs.
200
Rs.
200
Total Amount
Rs. 3,90,000
Rs. 3,30,000
Less: Installment Received
Rs. 3,75,000
H.P. Debtors
15,000
2005
The Number of installments due in 2005 and 2006 will be double respectively of the figures given above for 2004 and 2005 since
2005 sales are double the 2004 sales.
Rs.
(2) H.P. Sales price of goods sold 600 3,000
18,00,000
(3) Profit included in H.P. Sales Price 1/3 of 18,00,000
6,00,000
(4) Amount due from customers
Ex- 2004 Sales
3,30,000
Ex- 2005 Sales : Cash down 600 600
3,60,000
Hire Purchase Installments (Double of 2004)
7,80,000
14,70,000
Less: Installment due on repossessed sets (480 300) 200
36,000
14,34,000
Less: Installments Received and Deposit (10,70,000 + 3,60,000) =
14,30,000
Less: Collection of Drs. of 2004 =
15,000
14,15,000
Hire-Purchase Debtors as on 31.12.2005
19,000

Page17

(1)
(2)

5,70,000

IPCC- Accounts
Hire Purchase System