CALCULATION OF INTEREST PROBLEMS

WHEN CASH PRICE, RATE OF INTEREST AND INSTALLMENTS ARE GIVEN

1. On 1st April 2009, the ABC Company bought a machine from HMT LTD. On hire purchase system.
The cash price was ₹ 26,350 and the payment was to be made as follows.
₹ 10,000 on signing of the agreement and the balance in 3 yearly installment of ₹ 6,000 each, 5%
interest is charged by the hire vendor. Calculate the interest for each year.

WHEN INSTALMENTS EXCLUDES INTEREST

2. Calculate the value of each instalment from following details:
Cash price ₹ 12,000; Down payment 20% of cash price; Balance of cash price is payable in 3 equal
installments together with interest @ 10% on the outstanding cash price.

WHEN CASH PRICE AND INSTALLMENTS ARE GIVEN WITHOUT RATE OF INTEREST

3. On 1-4-2006 XYZ Company LTD. took delivery from ABC Company LTD a machine on hire purchase
system. ₹ 1500 being paid on delivery and the balance in 5 annual installments of ₹ 3,000 each
payable annually on 31st March. The cash price of the machine was ₹ 15,000. calculate the interest
for each year.

WHEN CASH PRICE IS NOT GIVEN

4. Calculate the cash price of an asset from the following:
₹ 3,000 paid at the time of agreement
₹ 21,600 paid at the time of I year
₹ 20,700 paid at the time of II year
₹ 19,800 paid at the time of III year
₹ 18,900 paid at the time of IV year
Rate of interest is 5% p.a

ASSET ACCRUAL METHOD

WHEN CASH PRICE, RATE OF INTEREST AND INSTALLMENTS ARE GIVEN
1. Mr. Ashok purchased a machine on hire purchase system from Bharath Motors on 1/4/2006. the
cash price of the machine was ₹ 74,500 and the payment was to be made as follows.
On signing of the agreement ₹ 20,000 and the balance in 3 installments of 20,000 each at the end of
each year. 5% interest is charged by the vendor. Mr.Ashok has decided to write off 10% depreciation
annually on the diminishing balance method.
Pass the necessary journal entries in the books of Mr. Ashok under Asset Accrual Method.

2. On 1st April 2006 the Tirupathi industries bought a machine from HMT LTD. On hire purchase
system. The cash price of the machine was ₹ 37,250 and the payment was to be made as follows:
₹ 10,000 on signing of the agreement and the balance in yearly installment of ₹ 10,000 each on 31st
March every year. The HMT LTD. Charges interest at 5% p.a and Tirupathi industries writes off 10%
every year on reducing balance system.
Pass the necessary journal entries and open the necessary accounts in the books of Tirupathi
industries under Asset Accrual Method.

3. Mr. Hanuman purchased two trucks on hire purchase system on 1st April 2010, the cash price being
₹ 56,000 and payment is to be made as follows: On signing of the contract ₹ 15,000 and there after
₹ 15,000 being paid annually for 3 years. Interest was cahrged at 5% p.a. Depreciation was written
off at the rate of 20% p.a on the reducing balance system.
Prepare necessary ledger accounts in the books of Mr.Hanuman under Asset Accrual Method.

WHEN CASH PRICE AND INSTALLMENTS ARE GIVEN WITHOUT RATE OF INTEREST

1. A Mini bus is purchased for ₹ 1,60,000 under hire purchase on 1/4/2011. the amount payable is
₹ 40,000 on entering the agreement and the balance in 3 annual installments of ₹ 50,000 each at the
end of the year. Depreciation is charged at 10% p.a on written down value method. Show the
necessary ledger accounts in the books of the purchaser under Asset Accrual Method.

2. Mr. Gupta purchased a machine in 1st April 2016 under the hire purchase system from Mr. Pankaj.
The cash price was ₹ 15,500. the payment for the purchase is to be made as under:
On signing of the agreement ₹ 3,000, first year end ₹ 5,000, second year end ₹ 5,000 and third year
end ₹ 5,000.
Make the necessary journal entries in the books of Mr.Gupta under Asset Accrual Method. Charge
depreciation at 10% on diminishing balance method.

3. (When installments are exclusive of interest)

On 1st April 2011 Bhaskar purchased a machine from Ravi enterprises on hire purchase basis. The
particulars are as follows:
 Cash price ₹ 1,00,000
 ₹ 40,000 to be paid on signing the contract
 Balance in three installments of ₹ 20,000 plus interest
 Interest charged on outstanding balance at 5%
 Depreciation at 10% p.a on written down value method.
Draft the necessary journal entries in the books of Mr. Bhaskar under Asset Accrual Method.

WHEN CASH PRICE IS NOT GIVEN

1. Mr. Rajiv buys a Motor car on I/4/2016 under hire purchase system, the terms of payments are as
follows:
 ₹ 2,000 to be paid on signing the agreement
 ₹ 2,800 at the end of the 1st year
 ₹ 2,600 at the end of the 2nd year
 ₹ 2,400 at the end of the 3rd year
 ₹ 2,200 at the end of the 4th year.
If the interest is charged at the rate of 10% p.a. what was the cash price of the Motor car? And also
show the necessary ledger accounts under Asset Accrual Method if the rate of depreciation is 20% p.a
on reducing balance method.

2. Ram purchases a Motor car on hire purchase system from Sagar Motor on 1/4/2008. He pays
₹ 10,000 down payment and ₹ 8,000, ₹ 7,000 and ₹ 6,000 at the end of 1st, 2nd and 3rd year
respectively. Interest is charged by the vendor at 20% p.a. Ram writes off 10% p.a on diminishing
balance method.
Prepare the necessary ledger accounts in the books of Mr.Ram under Asset Accrual method.

3. X LTD purchased a machine on hire purchase system. The payment is made as follows:
Down payment ₹ 23,250; I installment - ₹ 35,000; II installment - ₹ 40,000; III installment - ₹ 20,000.
The payments are made at the end of 1st year, 2nd year and 3rd year respectively. The rate of interest is
5% p.a. The annuity table shows that the present value of ₹ 1 for one, two and three year is 0.952.
0.907 and 0.864 respectively. The rate of depreciation at 10% on straight line method. Prepare
ledger accounts in the book of X Ltd. Under Asset Accrual Method.