Hire Purchase Notes 10 Yr

Prarmod purchased four machines of Rs. 14,000 each from Shiva under His Purchase system.
The payment is
to be made thus—Rs. 15,00’ cash down and three annual instalments of Rs. 15,000 each. Pramod depreciates
the machines at 10% p.a. on written down value method. On Pramod’s failure to pay, the second instalment
Shiva took back three machines. The machines were taken back after depreciating then at 20% on written
down value basis.
Shiva repaired the machines spending Rs. 3,120 and resold them for Rs. 35,000.
Open necessary accounts in the books of both the parties. Also show all your calculations neatly.
10.
Ans.
In the Books of Pramod
Machines on Hire Purchase Account
` `
1st Year 1st Year
Beginning To Shiva's A/c End By Depreciation A/c 5,600
(4 × ` 14,000) 56,000 End By Balance c/d 50,400
56,000 56,000
IInd Year IInd Year
Beginning To Balance b/d 50,400 End By Depreciation A/c 5,040
End By Shiva's A/c 26,880
(Note 3)
End By Profit & Loss 7,140
(Note 3)
End By Balance c/d 11,340
(Note 2)
50,400 50,400
Shiva's Account
` `
1st Year 1st Year
Beginning To Bank A/c Beginning By Machines on Hire

(Down Payment) 15,000 Purchase A/c 56,000
End To Bank B/c 15,000 End By Interest A/c 2,000
End To Balance c/d 28,000 (Note 1)
58,000 58,000
IInd Year IInd Year
End To Machines on Hire Beginning By Balance b/d 28,000
Purchase A/c 26,880 End By Interest A/c 1,333
End To Balance c/d 2,453 (Note 1)
29,333 29,333
IIIrd Year By Balance b/d 2,453
Beginning
In the Books of Shiva
Pramod's Account
` `
Ist Year Ist Year
Beginning To Hire Sales A/c 56,000 Beginning By Bank A/c 15,000
End To Interest A/c 2,000 End By Bank A/c 15,000
End By Balance c/d 28,000
58,000 58,000
IInd Year IInd Year
Beginning To Balance b/d 28,000 End By Goods 26,880
Repossessed A/c
End To Interest A/c 1,333 End By Balance c/d 2,453
29,333 29,333
Goods Repossessed Account
` `
To Pramod's A/c 26,880 By Bank A/c 35,000
To Bank A/c (Repairs) 3,120

To Profit & Loss A/c 5,000
(Profit on sale)
35,000 35,000
Working Notes:
(1) Calculation of Interest `
Total hire purchase price of four machines
= Down Payment + Instalments
- (15,000 + 3 × 15,000) = ` (15,000 + 45,000) = 60,000
Less : Total cash price of four machines (` 14,000 × 4) = 56,000
Total Interest 4,000
Since the rate of interest has not been given the interest on each instalment should be calculated on the basis
of ratio of outstanding amounts as calculated below :
Total Hire purchase price 60,000
Less: Down Payment 15,000
45,000
Less: First Instalment 15,000
30,000
Less: Second Instalment 15,000
15,000
Less: Third Instalment 15,000
Nil
Ratio of Outstanding Amounts = ` 45,000 : ` 30,000 : ` 15,000 = 3:2:1
Interest on First Instalment = ` 4,000 × 3/6 = ` 2,000
Interest on Second Instalment = ` 4,000 × 2/6 = ` 1,333
Interest on Third Instalment = ` 4,000 × 1/6 = ` 667 (Not required)
(2) Calculation of the value of the Machine Retained `
Cost Price of one machine 14,000

Less : Depreciation for the 1st Year 1,400
12,600
Less: Depreciation for the 2nd Year 1,260
11,340
(3) Calculation of the value of the Machine Returned
Cash Price of three Machines (` 14,000 ` 3) 42,000
Less: Depreciation for the 1st Year (20% of ` 42,000) 8,400
33,600
Less: Depreciation for the IInd Year (20% of ` 33,600) 6,720
26,880
Value of 3 Machines in the books of Pramod :
Cash Price of 3 Machines : `
(3 × 14,000) 42,000
Less : Depreciation for 1st Year
(10% of ` 42,000) 4,200
37,800
Less: Depreciation for IInd Year
(10% of ` 37,800) 3,780
34,020
Loss suffered by Pramod on default = ` 34,020 - ` 26,880 = ` 7,140
X Transport Ltd., purchased from Manish Motors 3 tempos costing Rs. 4,00,000 each on hire-purchase basis
on 1-1-2005. 25% of the cost was to be paid down and the balance in 3 equal annual instalments together
with interest @ 9% at the end of each year. X Transport Ltd. paid the instalment due on 31st December, 2005,
but could not pay thereafter. Manish Motors agreed to leave one tempo with the purchaser on 1-1-2007
adjusting the value of the other 2 tempos against the amount due on that date. The tempos recovered were
valued on the basis of 30% depreciation annually on W.D.V.
X Transport Ltd. charges depreciation on tempos @ 20% on diminishing balance method. MIs Manish Motors
incur Rs. 40,000 on repairs of tempos repossessed and resell them at a profit of 5% on total cost. Write up
necessary Ledger Accounts in the books of both parties giving effect to the above transactions.
14
Ans.
In the Books of × Transport Ltd.
Tempos Account
` `
1.1.05 To Manish Motors 31.12.05 By Depreciation A/c
` (4,00,000 × 3) 12,00,000 ` [12,00,000 × 20/100] 2,40,000
31.12.05 By Balance c/d 9,60,000
12,00,000 12,00,000
1.1.06 To Balance b/d 9,60,000 31.12.06 By Depreciation A/c
Rs. [9,60,000 × 20/100] 1,92,000
31.12.06 Manish Motors
(Value of 2 tempos
taken away) (Note 2) 3,92,000
31.12.06 By Profit & Loss A/c
(Loss) (Note 3) 1,20,000
31.12.06 By Balance c/d
(Value of one tempo
left) (Note 1) 2,56,000
9,60,000 9,60,000
Manish Motors Account
` `
1.1.05 To Bank A/c 1.1.05 By Asset (Tempos) A/c 12,00,000
(Down Payment) 3,00,000 31.12.05 By Interest A/c
31.12.05 To Bank A/c [` 9,00,000 × 9/100] 81,000
[3,00,000 + 81,000] 3,81,000
31.12.05 To Balance c/d 6,00,000
12,81,000 12,81,000
31.12.06 To Tempos A/c 1.1.06 By Balance b/d 6,00,000

- (Value of 2 tempos [` 6,00,000 × 9/100]
taken away) 3,92,000 By Interest A/c
31.12.06 To Balance c/d 2,62,000 [` 6,00,000 × 9/100] 54,000
6,54,000 6,54,000
In the Books of Manish Motors (Vendor)
X Transport Ltd. Account
` `
1.1.05 To Hire Sales A/c 12,00,000 1.1.05 By Bank A/c (Down
31.12.05 To Interest A/c 81,000 Payment) 3,00,000
31.12.05 By Bank A/c 3,81,000
31.12.05 By Balance c/d 6,00,000
12,81,000 12,81,000
1.1.06 To Balance b/d 6,00,000 31.12.06 By Goods
31.12.06 To Interest A/c 54,000 Repossessed A/c 3,92,000
31.12.06 By Balance c/d 2,62,000
6,54,000 6,54,000
` `
To 'X Transport Ltd. 3,92,000 By Bank A/c (Sales) 4,53,600
To Bank A/c (Repair) 40,000
To Profit & Loss A/c
(Profit on sale)
[` 3,92,000 + ` 40,000] × 5/100 21,600
4,53,600 4,53,600
Working Notes:
(1) Value of Tempo left with the buyer
Number of Tempos: One
Cash Price : (` 4,00,000 × 1) ` 4,00,000

Less : Depreciation @ 20% p.a. on diminishing
Balance Method for one year (First year 2005) 80,000
Value of Tempo left with the buyer ` 3,20,000
at the end of the First year
Less: Depreciation @ 20% p.a. (for 2006) 6,400
Value of the tempo left with the buyer at
the end of 2nd year 2,56,000
(2) Value of tempo taken away by the seller
Number of Tempos: Two
Cash Price (Cost) [` 4,00,000 × 2] ` 8,00,000
Depreciation 30% as per W.D.V. method for
2 years i.e., ` 2,40,000 + ` 1,68,000 = ` 4,08,000 4,08,000
Value of tempos taken away at the end of the 2nd year 3,92,000
(3) (i) Book value of two tempos on 31.12.06 = ` 8,00,000 - (` 1,60,000
- Depreciation First Year) -(` 1,28,000-Depreciation as per W.D.V., 2nd Year)
= ` 5,12,000
(a) Value of tempos taken (as per Note 2) = ` 3,92,000
(a) Loss due to default (i - ii) i.e., ` [5,12,000 - 3,92,000] = ` 1,20,000
HV Ltd. sold three cars for a total cash price of Rs. 9,00,000 on hire-purchase basis to Mr. X on 1st January,
2005. The terms of agreement provided for Rs. 2,70,000 as cash down and the balance of the cash price in
three equal instalments together with interest at 10% p.a. The instalments were payable at the end of each
year. Mr. X paid the first instalment on time but failed to pay thereafter. On his failure to pay the second
instalment, HV Ltd. repossessed two cars and valued them at 50% of the cash price. Mr. X charges 25% p.a.
depreciation on written down value method.
Prepare necessary ledger accounts in the books of both the parties. 10
Ans.
In the Books of Mr. X
Cars Account
` `
2005 2005
Jan. 1 To HV Ltd. 9,00,000 Dec. 31 By Depreciation A/c 2,25,000
[` 9,00,000 × 25/100]
By Balance c/d 6,75,000
9,00,000 9,00,000
2006 2006
Jan. 1 To Balance b/d 6,75,000 Dec. 31 By Depreciation A/c 1,68,750
[` 6,75,000 × 25/100]
By HV Ltd. 3,00,000
(Cars taken away)
By Profit & Loss A/c
- Loss on default 37,500
(Balancing Figure)
6,75,000 6,75,000
HV Ltd.
` `
2005 2005
Jan. 1 To Bank A/c Jan. 1 By Cars A/c 9,00,000
(Down Payment) 2,70,000 Dec. 31 By Interest A/c
Dec. 31 To Bank A/c ` [9,00,000
` [2,10,000 + 63,000] 2,73,000
- 2,70,000 × 10/100 63,000
Dec. 31 To Balance c/d 4,20,000
9,63,000 9,63,000
2006 2006
Dec. 31 To Cars A/c 3,00,000 Jan. 1 By Balance b/d 4,20,000
(Value of cars taken Dec. 31 By Interest A/c

away) [10% of ` 4,20,000] 42,000
To Balance c/d 1,62,000
4,62,000 4,62,000
Hire Purchaser (Mr. X) will keep one car and pay further ` 1,62,000. New Contract will be signed for deciding
the manner in which the amount will be paid.
Hire Vendor's Book: HV Ltd.
Mr. X Cr.
` `
2005 2005
Jan. 1 To Hire Jan. 1 By Bank A/c 2,70,000
Sales A/c 9,00,000 Dec. 31 By Bank A/c
Dec. 31 To Interest 63,000 ` [2,10,000 + 63,000] 2,73,000
9,63,000 9,63,000
2006 2006
Jan. 1 To Balance b/d 4,20,000 Dec. 31 By Goods
Dec. 31 To Interest A/c 42,000 Repossessed A/c 3,00,000
(Value of Cars taken
away)
Dec. 31 By Balance c/d 1,62,000
4,62,000 4,62,000
2006 2006
Dec. 31 To X 3,00,000 Dec. 31 By Balance c/d 3,00,000
Working Notes:
(1) Calculation of the Value of two cars repossessed by the Vendor (HV Ltd.):
Cash price of two cars = ` 6,00,000
Value of two cars repossessed = ` 6,00,000 × 50/100 = ` 3,00,000

Value of 2 cars standing in the books of hire purchaser : `
Cash Price of 2 Cars 6,00,000
Less: 25% Depreciation for 2005 1,50,000
4,50,000
Less: 25% Depreciation for 2006 1,12,500
3,37,500
Loss suffered by hire purchaser on default
= ` (3,37,500-3,00,000) = ` 37,500
(2) Calculation of the value of a car left with the buyer `
Cost 3,00,0000
Less: Depreciation @ 25% for 2005 75,000
Value on 1.1.2006 2,25,000
Value of car at the end of 2nd Year (i.e., 31.12.2006) 1,68,750
2. A. Ltd. purchased a machine on hire-purchase system from B. Ltd., on 1st Jan. 2002, paying immediately Rs.
20,000 and agreeing to pay three instalments of Rs. 20,000 each on 31st December every year. The cash price
of the machine is Rs. 74,500 and vendors charge interest at 5% pa. Depreciation is charged 20% p.a. on
diminishing balance method. Calculate the amount of’ interest paid by buyer to the seller every year and also
prepare important Ledger Accounts in the books of A.Ltd. 14
Sol. Calculation of Interest:
Total Cash Price of the Machinery 74,500
54,500
Add: Interest on ` 54,500 @ 5% for one year 2,725
57,225
Less : First Hire Purchase Instalment 20,000
37,225
Add : Interest on ` 37,225 @ 5% for one year 1,861
39,086
Less : Second Hire Purchase Instalment 20,000
19,086
Add: Interest (Balancing Figure i.e., ` 20,000 - ` 19,086) 914
20,000
Less : Third Hire Purchase Instalment 20,000
Note: 1. The interest is calculated on the outstanding total cash price and not on the outstanding total
instalments.
2. In the last year, interest is the difference between the last instalment paid and cash price remaining unpaid.
In the books of A Ltd.
Machinery Account Cr.
` `
2006 2006
Jan. 1 To B Ltd. 74,500 Dec. 31 By Depreciation A/c 14,900
Dec. 31 By Balance c/d 59,600
74,500 74,500
2007 2007
Jan. 1 To Balance b/d 59,600 Dec. 31 By Depreciation A/c 11,920
59,600 59,600
2008 2008
47,680 47,680
Dr. B's Account Cr.

2006 2006
Jan. 1 To Bank A/c 20,000 Jan. 1 By Machine A/c 74,500
Dec. 31 To Bank A/c 20,000 Dec. 31 By Interest A/c
Dec. 31 To Balance c/d 37,225 (5% on ` 54,500) 2,725
77,225 77,225
2007 2007
Dec. 31 To Bank A/c 20,000 Jan. 1 By Balance b/d 37,225
Dec. 31 To Balance c/d 19,086 Dec. 31 By Interest A/c
(5% on ` 37,225) 1,861
39,086 39,086
2008 . 2008
Dec. 31 By Interest A/c
`(20,000-19,086) 914
20,000 20,000
X purchased five trucks on 1st October, 2005. The Cash Price of each truck was Rs. 5,50,000. X was to pay
20% of Cash Price at the time of delivery and 25% of Cash Price at the end of each of the subsequent four half-
yearly periods beginning from 31st March, 2006. 10
On X’s failure to pay the instalment due on 30th September, 2006, it was agreed that X could keep three
trucks, on the condition that value of two trucks would be adjusted against the amount due, the trucks being
valued at cost less 25% depreciation.
Show the necessary Ledger Accounts in the books of X, assuming that his books are closed on 31st March each
year and he charges depreciation @ 15% on original cost of trucks.
Sol.
In X's Books
Trucks Account
` `
1.10.05 To Hire Vendor A/c 27,50,000 31.3.06 By Depreciation A/c
(Note 1) 2,06,250
27,50,000 27,50,000
01.4.06 To Balance b/d 25,43,750 30.9.06 By Depreciation A/c 2,06,25a
(Note 2)
30.9.06 By Hire Vendor A/c
(Note 3) 8,25,000
30.9.06 By Profit & loss A/c
(Loss on Default)
(Note 4) 1,10,000
30.9.06 By Balance c/d 14,02,500
25,43,750 25,43,750
Hire Vendor Account
` `
1.-0.05 To Bank A/c 5,50,000 1.10.05 By Trucks A/c 27,50,000
1.3.06 To Bank A/c 6,87,500 31.3.06 By Interest A/c 2,20,000
1.3.06 To Balance c/d 17,32,500
29,70,000 29,70,000
30.9.06 To Trucks A/c 8,25,000 1.4.06 By Balance b/d 17,32,500
30.9.06 To Balance c/d 10,72,500 30.9.06 By Interest A/c 1,65,000
18,97,500 18,97,500
Working Notes:
(1) Depreciation on ` 27,50,000 for 6 months (1.10.05 to 31.3.06) @ 15% p.a.
= ` 27,50,000 × 6/12 × 15/100
= ` 2,06,250
(2) Depreciation on ` 27,50,000 for 6 months (1.4.06 to 30.9.06) @ 15% p.a.
-= ` 27,50,000 × 6/12 × 15/100
= ` 2,06,250
(3) Agree value of 2 Trucks taken away by the Vendor `

Cash price of two trucks 11,00,000
Less: 25% 2,75,000
8,25,000
(4) Cash price of two trucks 11,00,000
Less : Depreciation @ 15% p.a. for 1 year from
October 1,2005 to Sep. 30, 2006 1,65,000
Written down value on Sep. 30,2006 9,35,000
Less : Value at which the trucks have been
taken away by hire vendor 8,25,000
Loss on default 1,10,000
(5) Total Interest = Hire Purchase Price - Cash Price
= (` 6,87,500 × 4 + ` 5,50,000) - ` 27,50,000 5,50,000
Calculation of Interest
Instalment Ratio of Interest Interest `
1 4/10 5,50,000 × 4/10 2,20,000
2 3/10 5,50,000 × 3/10 1,65,000
3 2/10 5,50,000 × 2/10 1,10,000
4 1/10 5,50,000 × l/10 55,000
Hire Purchase Price = (` 6,87,500 × 4 + ` 5,50,000) 33,00,000
Less : Down Payment (20% of ` 27,50,000) 5,50,000
Amount Outstanding on 1st instalment 27,50,000
Less : Payment of 1st instalment 6,87,500
Amount outstanding on 2nd instalment 20,62,500
Less : Payment of 2nd instalment 6,87,500
Amount outstanding on 3rd instalment 13,75,000
Less : Payment of 3rd instalment 6,87,500

Amount outstanding on 4th instalment 6,87,500
Ratio of outstanding Amounts :
27,50,000 : 20,62,500 : 13,75,000 : 6,87,500
4 : 3 : 2 : 1
D Ltd. sold three machines costing Rs. 10,000 each to P on hire- purchase system on 1.1.2006. P paid Rs. 6,000
on the above date to receive delivery of the machine and agreed to pay five half-yearly instalments of Rs.
6,000 each.
P could not pay the third instalment in time whereupon D Ltd. repossessed one machine and P retained the
other two machines. The value of the returned machine was agreed to be cash price less 40%. The purchaser
charges depreciation @ 10% p.a., on reducing balance method.
D Ltd. sold the repossessed machine for Rs. 4,500 on 31st December, 2007 after incurring repairs of Rs. 200.
You are required to show:
D. Ltd. a/c and Machinery a/c in the books of hire-purchaser, and
P’s a/c and Goods Repossessed a/c in the books of D Ltd.
Sol. Cash Price = ` 10,000 × 3
= ` 30,000
Hire Purchase Price = ` 6,000 (Down) + (` 6,000 × 5)
= ` 36,000
Interest = ` 36,000 - ` 30,000
= ` 6,000
Calculation of Interest on Each Instalment
Half yearly Outstanding Amount Ratio Interest `
Instalment `
1 30,000 5 6,000 × 5/15= 2,000
2 24,000 4 6,000 × 4/15= 1,600
3 18,000 3 6,000 × 3/15= 1,200
4 12,000 2 6,000 × 2/15 = 800

5 6,000 1 6,000 × 1/15 = 400
15 6,000
In the Books of P (Hire Purchaser)
Machinery Account
` `
2006 2006
Jan. 1 To D Ltd. 30,000 Dec. 31 By Depreciation A/c 3,000
By Balance c/d 27,000
30,000 30,000
2007 2007
Jan. 1 To Balance b/d 27,000 June 30 By Depreciation A/c
on one machine for
6 months i.e., ` 9,000
x 10/100 × 6/12 450
June 30 By D Ltd. (Note 2) 6,000
June 30 By Profit & Loss A/c 2,550
(Note 3)
Dec. 31 By Depreciation A/c
On two machines i.e.,
` 18,000 × 10/100 1,800
27,000 27,000
D Ltd's Account
` `
2006 2006
Jan. 1 To Bank A/c 6,000 Jan. 1 By Machinery A/c 30,000
June 30 To Bank A/c 6,000 June 30 By Interest A/c 2,000
Dec. 31 To Bank A/c 6,000 Dec. 31 By Interest A/c 1,600

To' Balance c/d 15,600
33,600 33,600
2007 2007
June 30 To Machinery A/c 6,000 Jan. 1 By Balance b/d 15,600
To Balance c/d 10,800 June 30 By Interest A/c 1,200
16,800 16,800
In the Books of D Ltd.
P's Account
` `
2006 2006
Jan. 1 To Hire Sales A/c 30,000 Jan. 1 By Bank A/c 6,000
June 30 To Interest A/c 2,000 June 30 By Bank A/c 6,000
Dec. 31 To Interest A/c 1,600 Dec. 31 By Bank A/c 6,000
By Balabnce c/d 15,600
33,600 33,600
2007 2007
Jan. 1 To Balance b/d 15,600 June 30 By Goods
June 30 To Interest A/c 1,200 Repossessed A/c(1) 6,000
16,800 16,800
2007 2007
June 30 To P's A/c 6,000 Dec. 31 By Bank A/c (Sales) 4,500
To Bank A/c By Profit & Loss A/c 1,700
(Repair Expenses) 200 (Loss on Sale)
6,200 6,200
Working Notes:
(1) Depreciation for six months will be provided on one machine being repossessed. On the two machines left
depreciation will be provided for one year upto 31-12-2006.
(2) Agreed value of one Machine taken away by the vendor
Cash Price 10,000
Less: 40% 4,000
6,000
Value of one Machine standing in the books of the hire purchaser :
Cash Price 10,000
Less : Depreciation for 1st year @ 10% 1,000
9,000
Less : Depreciation for six months @ 10% 450
8,550
(3) Loss suffered by the hire purchaser on default
= ` (8,550 - 6,000) = ` 2,550
Verrma sold three machines costing Rs. 1,00,000 each to Sharma on hire purchase basis on 1-1-2005. Sharma
paid Rs. 60,000 on the above date and agreed to pay the balance in five half yearly instalments of Rs. 60,000
each starting from 30-06-2005. Sharma charges Depreciation @ 10% p.a. on Diminishing Balance method.
Books are closed on 31st December every year.
Sharma could not pay the third instalment in time whereupon Dharma repossessed one Machine at an agreed
value of cash price less 40%. Dharma sold the repossessed machine for Rs. 45,000 after incurring Rs. 2,000 on
its repairs.
Show relevant accounts in the books of both the parties showing all your workings.
Sol. Cash Price = ` 1,00,000 × 3 = ` 3,00,000
Hire Purchase Price = ` 60,000 (Down) + (` 60,000 × 5) = 3,60,000
Interest = ` 3,60,000 - ` 3,00,000 - ` 60,000
Half yearly Outstanding Amount Ratio Interest `
Instalment `
1 3,00,000 5 60,000 × 5/15 =20,000
2 2,40,000 4 60,000 × 4/15=16,000

3 1,80,000 3 60,000 × 3/15=12,000
4 1,20,000 2 60,000 × 2/15= 8,000
5 60,000 1 60,000 × 1/15= 4,000
15 60,000
In the Books of Sharma (Hire Purchaser)
Machinery Account
` `
2006 2006
Jan. 1 To Verma Ltd.'s A/c 3,00,000 Dec. 31 By Depreciation A/c 30,000
• By Balance c/d 2,70,000
3,00,000 3,00,000
2007 2007
Jan. 1 To Balance b/d 2,70,000 June 30 By Depreciation A/c
on one machine for
6 months i.e., 90,000
x 10/100 × 6/12 4,500
June 30 By Verma (Note 2) 60,000
June 30 By Profit & Loss A/c 25,500
(Note 3)
Dec. 31 By Depreciation A/c
On two machines i.e.,
1,80,000 × 10/100 18,000
Dec. 31 By Balance c/d 1,62,000
2,70,000 2,70,000
Verma's Account
` `
2006 2006
Jan. 1 To Bank A/c 60,000 Jan. 1 By Machinery A/c 3,00,000
June 30 To Bank A/c 60,000 June 30 By Interest A/c 20,000

3,36,000 3,36,000
2007 2007
June 30 To Machinery A/c 60,000 Jan. 1 By Balance b/d 1,56,000
To Balance c/d 1,08,000 June 30 By Interest A/c 12,000
1,68,000 1,68,000
In the Books of Verma
Sharma's Account
` `
2006 2006
Jan. 1 To Hire Sales A/c 3,00,000 Jan. 1 By Bank A/c 60,000
June 30 To Interest A/c 20,000 June 30 By Bank A/c 60,000
Dec. 31 To Interest A/c 16,000 Dec. 31 By Bank A/c 60,000
3,36,000 3,36,000
2007 2007
Jan. 1 To Balance b/d 1,56,000 June 30 By Goods
June 30 To Interest A/c 12,000 Repossessed A/c" 1 60,000
1,68,000 1,68,000
2007 2007
June 30 To Sharma 60,000 Dec. 31 By Bank A/c (Sales) 45,000
To Bank A/c By Profit & Loss A/c 17,000
(Repair Expenses) 2,000 (Loss on Sale)
62,000 62,000
Working Notes:
(1) Depreciation for six months will be provided on one machine being repossessed. On the two machines left
depreciation will be provided for one year upto 31-12-2006.
(2) Agreed value of one Machine taken away by the4 vendor `
Cash Price 10,000
Less: 40% 4,000
6,000
Value of one Machine standing in the books of the hire purchaser :
Cash Price 10,000
Less : Depreciation for 1st year @ 10% 1,000
9,000
Less: Depreciation for six months @ 10% 450
8,550
(3) Loss suffered by the hire purchased on default
= ` (8,550 - 6,000) = ` 2,550
Q. 4.A Ltd. sold 3 cars for a total cash sale price of Rs. 6,00,000 on hire purchase basisto B on 1-1-2004. The
terms of agreement provided for Rs. 1,20,000 as down payment and the balance of cash price in three equal
instalments together with interest at 12% p.a. The instalments were payable on the following dates :
First Instalment on 31-12-2004
Second Instalment on 31-12-2005
Third Instalment on 31-12-2006
B paid the two instalments in the time but could not pay the third instalment on due date.As a consequence,
the hire vendor repossessed the two cars and valued them at 60% of the cash price paid. B
chargesdepreciation at 15% p.a. on diminishing balance method.
Prepare necessary ledger account in the books of B.
Sol.
In the Books of B
Asset (Cars) Account
` `
1.1.07 To A Ltd. 6,00,000 31.12.07 By Depreciation A/c
` [6,00,000 × 15/100] 90,000
31.12.07 By Balance c/d 5,10,000
6,00,000 6,00,000
` [5,10,000 × 15/100] 76,500
31.12.08 By Balance c/d 4,33,500
5,10,000 5,10,000
` [4,33,500 × 15/100] 65,025
31.12.09 By A. Ltd. (Hire Vendor) 1,76,000
(Loss on Default) 69,650
31.12.09 By Balance c/d 1,22,825
4,33,500 4,33,500
A Ltd.
` `
1.1.07 To Bank A/c 1,20,000 1.1.07 By Cars A/c 6,00,000
31.12.07 To Bank A/c 31.12.07 By Interest A/c
(First Instalment) [` 6,00,000-` 1,20,000]
[` 1,60,000 + ` 57,600] 2,17,600 x 12/100 57,600
31.12.07 To Balance c/d 3,20,000
6,57,600 6,57,600
31.12.08 To Bank A/c 1.1.08 By Balance b/d 3,20,000
(Second Instalment) 1,98,400 31.12.08 By Interest A/c 38,400
[` 1,60,000 + ` 38,400] [` 3,20,000 × 12/100]
31.12.08 To Balance c/d 1,60,000
3,58,400 3,58,400
31.12.09 To Cars A/c 1,76,000 1.1.09 By Balance b/d 1,60,000

31.12.09 To Balance c/d 3,200 31.12.09 By Interest A/c 19,200
` [1,60,000 × 12/100]
1,79,200 1,79,200
Working Notes:
(1) Book value of Cars left and repossessed
One Two
Car Cars
Left Repossessed
` `
A. Cost 20,00,000 4,00,000
B. Less Depreciation for 3 years @ 15%
p.a. on diminishing balance method 77,175 1,54,350
Total Depreciation : (i.e.,` 2,31,525 × 1/3) (i.e., ` 2,31,525 × 2/3)
[90,000 + 76,000 + 65,025 - ` 2,31,525]
1,22,825 2,45,650
(2) Calculation of Cash Price Paid for 2 Cars
Cash price paid for 3 Cars till the date of default
= ` 1,20,000 (Down Payment) + ` 1,60,000
(First Instalment) + ` 1,60,000 (Second Instalment)
= ` 4,40,000
Cash Price paid for 2 Cars = ` 4,40,000 × 2/3
= ` 2,93,333
(3) Agreed value of 2 Cars Repossessed
= 60% of ` 2,93,333
= ` 1,76,000
(4) Loss on Default = Agreed value - Book value
= ` 1,76,000 - ` 2,45,650
= ` 69,650
On 1-1-90 X a TV dealer, bought 5 TV sets from Z Co. on hire purchase, e cash price of each set was Rs. 20,000.
It was agreed that 25% of the cash price should be paid immediately and the balance ill 3 equal instalments
ofRs. 30,000 each at the end of each year. The Z Co. charges interest @ 10% p.a. The buyer depreciates
television sets at 20% p.a. on the diminishing balance method. X paid cash down and two instalments but
failed to pay the last instalment. Consequently the Z Co. repossessed three sets, leaving 2 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 Z Co. for Rs. 30,000 after necessary repairs amounting to Rs. 5,000.
Show the necessary ledger accounts in the books of both the parties.
Sol.
In the Books of X
T. V. on Hire Purchase Account
` `
1.1.10 To Z Co. 1,00,000 31.12.10 By Depreciation A/c 20,000
(Hire Vendor) 31.12.10 By Balance c/d 80,000
1,00,000 1,00,000
1.1.11 To Balance b/d 80,000 31.12.11 By Depreciation A/c 16,000
31.12.11 By Balance c/d 64,000
80,000 80,000
1.1.12 To Balance b/d 64,000 31.12.12 By Depreciation A/c 12,800
31.12.12 By Z Co. (Note 2) 20,580
(Loss on default)
(Note 4) 10,140
31.12.12 By Balance c/d (Note 3) 20,480
64,000 64,000
Z Co. (Hire Vendor) Account
` `
1.1.10 To Bank A/c 25,000 1.1.10 By T V. on Hire

Purchase A/c 1,00,000
31.12.10 To Bank A/c 30,000 31.12.10 By Interest A/c
31.12.10 To Balance c/d 52,500 (10% on ` 75,000) 7,500
1,07,500 1,07,500
31.12.11 To Bank A/c 30,000 1.1.11 By Balance b/d 52,500
31.12.11 To Balance c/d 27,750 31.12.11 By Interest A/c
(10% on ` 52,500) 5,250
57,750 57,750
31.12.12 To T. V. on Hire 1.1.12 By Balance b/d 27,750
Purchase A/c 31.12.12 By Interest A/c
(Note 2) 20,580 ` (30,000-27,750) 2,250
31.12.12 To Balance c/d 9,420
30,000 30,000
In the Books of Z Co.
X's Account
` `
1.1.10 To Hire Sales A/c 1,00,000 1.1.10 By Bank A/c 25,000
31.12.10 To Interest A/c 7,500 31.12.10 By Bank A/c 30,000
31.12.10 By Balance c/d 52,500
1,07,500 1,07,500
1.1.11 To Balance b/d 52,500 31.12.11 By Bank A/c 30,000
31.12.11 To Interest A/c 5,250 31.12.11 By Balance c/d 27,750
57,750 57,750
1.1.12 To Balance b/d 27,750 31.12.12 By Goods
31.12.12 To Interest A/c 2,250 Repossessed A/c 20,580
(Note 2)
31.12.12 By Balance c/d 9,420
30,000 30,000

` `
To X 20,580 By Cash A/c (Sale) 30,000
To Cash A/c (Expenses) 5,000
(Profit on Repossession)
(Balancing Figure)
30,000 30,000
Working Notes:
(1) Calculation of Interest `
Cost of 5 T.V. sets ` (20,000 × 5) 1,00,000
75,000
Add : Interest for 2010 at 10% (` 75,000 × 10/100) 7,500
82,500
Less: First Instalment 30,000
52,500
Add : Interest for 2011 at 10% (` 52,500 × 10/100) 5,250
57,750
Less: Second Instalment 30,000
Add: Interest for 2012 (` 30,000 - ` 27,750) 27,750
2,250
30,000
(2) Value of Repossessed T.V. Sets `
Cost of 3 Sets 60,000
Less: Depreciation for 2010 @ 30% 18,000
42,000
Less: Depreciation for 2011 @ 30% 12,600

29,400
Less : Depreciation for 2012 @ 30% 8,820
20,580
(3) Value of T.V. Sets Retained `
Cost of 2 Sets 40,000
Less : Depreciation at 20% (2010) 8,000
32,000
25,600
20,480
(4) Loss Due to Repossession (Verification) `
Cost of 3 T.V. Sets 60,000
Less: Depreciation
` (12,000 + 9,600 + 7,680) 29,280
30,720
Less: Value of Repossession 20,580
Loss on Default 10,140
Q. 5. Kanpur Transport Ltd. purchased from Delhi Motors three trucks costing Rs. 5,00,000 each on the hire-
purchase system. Payment was to be made Rs. 3,00,000 down and the remainder in three equal instalments
together with interest @ 9%.
Kanpur Transport Ltd. wrote off depreciation @ 20% on the diminishing balance. It paid the instalments due
at the end of the first year but could not pay the next. Delhi Motors agreed to leave one truck with the
purchaser, adjusting the value of the other two trucks against the amounts due. The trucks were valued on
the basis of 30% depreciation (diminishing value) annually. Show the necessary accounts in the books of
Kanpur Transport Ltd. for two years. 14
Sol.
In the Books of Kanpur Transport Ltd.

Trucks Account
` `
First Year Beginning First Year end
To Delhi Motors A/c By Depreciation A/c
` (5,00,000 × 3) 15;00,000 (20% on ` 15,00,000) 3,00,000
15,00,000 15,00,000
Second Year Beginning Second Year end
To Balance b/d 12,00,000 By Depreciation A/c
(20% on ` 12,00,000) 2,40,000
By Delhi Motors
(Value of 2 Trucks taken
away) (Note 2) 4,90,000
By Profit & Loss A/c 1,50,000
(Loss on default)
By Balance c/d (Note 1) 3,20,000
12,00,000 12,00,000
Delhi Motors Account
` `
First Year Beginning First Year Beginning
To Bank (Down payment) 3,00,000 By Trucks A/c 15,00,000
First Year end First Year end
To Bank A/c By Interest A/c
[` 4,00,000 + 11,08,0001 5,08,000 [9% on ` 12,00,000] 1,08,000
16,08,000 16,08,000
Second Year end Second Year Beginning
To Trucks A/c By Balance b/d 8,00,000

(Value of 2 trucks taken away) 4,90,000 Second Year end
To Balance c/d 3,82,000 By Interest A/c
[9% on ` 8,00,000] 72,000
8,72,000 8,72,000
Working Notes:
1. Value of a Truck left with the buyer: `
Cost 5,00,000
Less : Depreciation (1st year) [` 5,00,000 × 20/100] 1,00,000
Book value at the beginning of the 2nd year 4,00,000
Less : Depreciation (2nd year) [` 4,00,000 × 20/100) 80,000
3,20,000
2. Value of Trucks taken over by the scller: `
Cost (` 5,00,000 × 2) 10,00,000
Less : Depreciation (1st year) 3,00,000
Book value at the beginning of the 2nd year 7,00,000
Less : Depreciation [` 7,00,000 × 30/100] 2,10,000
4,90,000
3. Loss on Trucks taken over = Book value - Agreed value
= [` 10,00,000 × 80/100 × 80/100] - ` 4,90,000
= ` 6,40,000 - ` 4,90,000 = ` 1,50,000
(b) Ajay purchased four machines at ` 56,000 each on hire-purchase system on 1.1.2005 from Bombay
Machines limited. The hire-purchase price for all the four machines was ` 2,40,000. The payment was
to be made ` 60,000 on signning the agreement and three instalments of ` 60,000 each at the end of the
end of each of the three years. Interest is charged @ 5% p.a. and Ajay charges depreication @ 10% p.a.
on Straight line Method.
Ajay paid the down payment and the first instalment but could not pay the second instalment. The
vendor, after negotiations, took back three machines. These were taken back after depreciating them
@ 20% p.a. on written down value method, one machine was left with the purchaser.
The vendor spent ` 3,600 on repairs and sold all the machines for `1,05,000.
Prepare Machines Account and Bombay Machines Limited Account in the books of Ajay and Ajay's
Account and Goods Repossessed Account in the books of Bombay Machinery Limited. Show all
workings clearly. (12)
Sol.
In the Books of Ajay
Machines on Hire Purchase Account
` `
1.1.05 To Bombay 31.12.05 By Depreciation A/c
Machines Ltd. 2,24,000 `(2,24000 x 10/100) 22,400
31.12.05 By Balance c/d 2,01,600
2,24,000 2,24,000
`(2,24000 x 10/100) 22,400
31.12.06 By Bombay
Machines Ltd.
(Value of 3 Machines »
i left) (Note 1) 1,07,520
31.12.06 By Profit & Loss A/c 26,880
(Note 2)
31.12.06 By Balance (Value of
2 Machines left)
(Note 3) 44,800
2,01,600 2,01,600
Bombay Machines Ltd.
` `
1.1.05 To Bank A/c 60,000 1.1.05 By Machines on Hire
31.12.05 To Bank A/c 60,000 31.12.05 Purchase A/c 2,24,000
31.12.05 To Balance c/d 1,12,200 By Interest A/c
(Note 4) 8,200
, 2,32,200 2,32,200
31.12.06 To Machines on Hire 1.1.06 By Balance b/d 1,12,200
Purchase A/c 1,07,520 31.12.06 By Interest A/c
31.12.06 To Balance c/d 10,290 (Note 4) 5,610
1,17,810 1,17,810
In the Books of Bombay Machines Ltd.
Ajay's Account
` `
1.1.05 To Hire Sales A/c 2,24,000 1.1.05 By Bank A/c 60,000
31.12.05 By Balance c/d 1,12,200
2,32,200 2,32,200
1.1.06 To Balance b/d 1,12,200 31.12.06 By Goods Repossessed
31.12.06 To Interest A/c 5,610 A/c 1,07,520
31.012.06 By Balance c/d 10,290
1,17,810 1,17,810
` `
31.12.06 To Ajay 1,07,520 31.12.05 By Bank A/c 1,05,000
31.12.06 To Bank A/c 3,600 31.12.06 By Profit & Loss A/c
(Repairs) (Note 5) 6,120
1,11,120 1,11,120
Working Notes:
(1) Agreed value of 3 Machines taken away by Bombay Machines Ltd.
Cash price on 3 Machines :3 x ` 56,000 1,68,000
Less : Depreciation @ 20% for 2005 33,600
1,34,400
Less : Depreciation @ 20% for 2006 26,880

1,07,520
Value of 3 Machines in the books of Ajay
Cost price of 3 Machines :3 x ` 56,000 1,68,000
Less : Depreciation @ 10% for 2005 and 2006 :
`(1,68,000 x 10/100 x 2) 33,600
1,34,400
(2) Loss Suffered by Ajay = ` (1,34,400 - 1,07,520)
= ` 26,880
(3) Value of the Machine Retained `
Cost of one Machine 56,000
i Less : Depreciation @ 10% for 2005 and 2006:
`(56,000 x 10/100 x 2) 11,200
44,800
(4) Calculation of Interest
Cost price of 4 Machines (` 56,000 x 4) 2,24,000
1,64,000
Add: Interest @ 5% on ` 1,64,000 for 2005 ` (1,64,000 x 5/100) 8,200
1,72,200
Less : 1st Instalment Paid 60,000
1,12,200
Add: Interest @ 5% on ` 1,12,200 for 2006 ` [ 1,12,200 x 5/100] 5,610
1,17,810
(5) Written down value of 3 Machines on 31.12.06 1,07,520
Add: Expenses on repairs 3,600
1,11,120
Less: Sale price of the Machines 1,05,000
Loss on Sale 6,120

(a) X Ltd. purchased on Hire-purchase from Y Ltd. on January 1, 2010 by paying immediately ` 40,000
and the balance in three equal instalments of ` 40,000 each at the end of each year. The Cash Price is `
1,49,000 and interest is charged @ 5% p.a. Calculate the amount of Interest paid by X Ltd. to Y Ltd.
every year. (3)
Sol.
Calculation of the amount of interest paid by X Ltd. to Y Ltd. every year
Cost price of the Asset 1,49,000
1,09,000
Add : Interest on ` 1,09,000 @ 5% on 1st Instalment
`(1,09,000 x 5/100) 5,450
1,14,450
Less : Payment of 1st Instalment 40,000
74,450
Add : Interest on ` 74,450 @ 5% on IInd Instalment
` (74,450 x 5/100) 3,723
78,173
Less : Payment of IInd Instalment 40,000
38,173
Add: Interest on IIIrd Instalment ` (40,000 - 38,173) 1,827
40,000
Interet paid every year : `
Ist year 5,450
IInd year 3,723
IIrd year 1,827
Total Interest Paid 11,000

(b) On 1st April, 2011 Deepak purchased 3 machines from Sandeep on hire purchase basis. The cash price of
each machine was Rs. 1,00,000.
Deepak agreed to make the following payments :
On 01.04.2011 Rs. 1,20,000
On 30.09.2011 Rs. 80,000
On 31.03.2012 Rs. 80,000
On 30.09.2012 Rs. 80,000
Deepak paid the first three instalments but could not pay the instalment due on 30-09-2012. Deepak
depreciates machinery @ 20% p.a. according to diminishing balance method. Consequently Sandeep
repossessed 2 machines after charging depreciation at the of 30% p.a. according to straight line method.
Accounts of closed on 31st March each year.
Prepare Machinery Account and Sandeep Account in the books of Deepak and Deepak's Account in the books
of Sandeep.
(b) Cash Price = ` 1,00,000 x 3
= ` 3,00,000
Hire Purchase Price = ` 1,20,000 + ` 80,000 + ` 80,000 + ` 80,000
= ` 3,60,000
Interest - ` 3,60,000 - ` 3,00,000
= ` 60,000
Half Yearly Instalment Outstanding Ratio Interest (`)
Amount (`)
30.09.2011 2,40,000 3 ` 60,000 x 3/6 = 30,000
31.03.2012 1,60,000 2 ` 60,000 x 2/6 = 20,000
30.09.2012 80,000 1 ` 60,000 x 1/6 = 10,000
Books of Deepak (Hire Purchaser)
Dr. Machinery Account Cr.
Date Particulars ` Date Particulars `

1.4.201 To Sandeep 3,00,000 31.3.2012 By Depreciation A/c 60,000
1
[` 3,00,000 x 20/100]
3,00,000 3,00,000
1.4.201 To Balance b/d 2,40,000 30.9.2012 By Depreciation A/c 24,000

2
[` 2,40,000 x 20/100
x 6/12]
By Sandeep (Note 1) 2,10,000
(Goods Repossessed) 34,000
By Profit & Loss A/c
(Balancing Figure)
By Balance c/d (Note 1) 72,000
2,40,000 2,40,000
Dr. Sandeep's Account Cr.
1.4.2011 To Bank A/c 1,20,000 1.4.2011 By Machinery A/c 3,00,000
30.9.2011 To Bank' A/c 80,000 30.9.2011 By Interest A/c 30,000
31.3.2012 To Bank A/c 80,000 31.3.2012 By Interest A/c 20,000
31.3.2012 To Balance c/d 70,000
3,50,000 3,50,000
30.9.2012 To Machinery A/c 1,10,000 1.4.2012 By Balance b/d 70,000
30.9.2012 By Interest A/c 10,000
i 30.9.2012 By Balance c/d 30,000
1,10,000 1,10,000
In the Books of Sandeep Dr. Deepak's Account Cr.
1.4.2011 To H.P. Sales A/c 3,00,000 1.4.2011 By Bank A/c 1,20,000

30.3.2012 By Balance c/d 70,000
3,50,000 3,50,000
1.4.2012 To Balance b/d 70,000 30.9.2012 By Goods 1,19,000
30.9.2012 To Interest A/c 10,000 Repossessed A/c
To Balance c/d 30,000
1,10,000 1,10,000
Working Notes:
1. Value of two Machines returned (Repossessed): `
Cash Price of 2 Machines (Rs. 1,00,000 % 2) 2,00,000
Less: Depreciation for 1 1/2 Years:
(` 60,000 + ` 30,000) 90,000
1,10,000
2. Value of one machine left with buyer: `
Cost of one machine 1,00,000
Less: Depreciation @ 20% according to
diminishing balance method :
(i) 20% of ` 1,00,000 = ` 20,000
(ii) 20% of ` 80,000 for 6 months = ` 8000 28,000
72,000
Q. 4. X Transport Ltd. purchased from Manish Motors 3 tempos costing ` 4,00,000 each on hire-purchase
basis on 1-1-2005.25% of the cost was to be paid down and the balance in 3 equal annual instalments together
with interest @ 9% at the end of each year. X Transport Ltd. paid the instalment due on 31st December, 2005,
but could not pay thereafter. Manish Motors agreed to leave one tempo with the purchaser on 1-1-2007
adjusting the value of the other 2 tempos against the amount due on that date. The tempos recovered were
valued on the basis of 30% depreciation annually on W.D.V.
X Transport Ltd. charges depreciation on tempos @ 20% on diminishing balance method. Manish Motors
incur ` 40,000 on repairs of tempos repossessed and resell them at a profit of 5% on total cost. Write up
necessary Ledger Accounts in the books of both parties giving effect to the above transactions. (14)
Ans.
In the Books of X Transport Ltd.
Tempos Account
` `
1.1.05 To Manish Motors 31.12.05 By Depreciation A/c
` (4,00,000 x 3) 12,00,000 ` [12,00,000 x 20/100] 2,40,000
31.12.05 By Balance c/d 9,60,000
12,00,000 12,00,000
Rs. [9,60,000 x 20/100] 1,92,000
31.12.06 Manish Motors
(Value of 2 tempos
taken away) (Note 2) 3,92,000
(Loss) (Note 3) 1,20,000
31.12.06 By Balance c/d
(Value of one tempo
left) (Note 1) 2,56,000
9,60,000 9,60,000
Manish Motors Account
` `
01.01.05 To Bank A/c 1.1.05 By Asset (Tempos) A/c 12,00,000
(Down Payment) 3,00,000 31.12.05 By Interest A/c
31.12.05 To Bank A/c [` 9,00,000 x 9/100] 81,000
[3,00,000 + 81,000] 3,81,000

31.12.05 To Balance c/d 6,00,000
12,81,000 12,81,000
31.12.06 To Tempos A/c 1.1.06 By Balance b/d 6,00,000
(Value of 2 tempos [` 6,00,000 x 9/100]
taken away) 3,92,000 By Interest A/c
31.12.06 To Balance c/d 2,62,000 [` 6,00,000 x 9/100] 54,000
6,54,000 6,54,000
In the Books of Manish Motors (Vendor)
X Transport Ltd. Account
` `
01.01.05 To Hire Sales A/c 12,00,000 1.1.05 By Bank A/c (Down
31.12.05 To interest A/c 81,000 Payment) 3,00,000
31.12.05 By Bank A/c 3,81,000
31.12.05 By balance c/d 6,00,000
12,81,000 12,81,000
01.01.06 To Balance b/d 6,00,000 31.12.06 By Goods
31.12.06 To Interest A/c 54,000 Repossessed A/c 3,92,000
31.12.06 By Balance c/d 2,62,000
: 6,54,000 6,54,000
` `
To X Transport Ltd. 3,92,000 By Bank A/c (Sales) 4,53,600
To Bank A/c (Repair) 40,000
To Profit & Loss A/c
(Profit on sale)
[` 3,92,000 + ` 40,000] x 5/100 21,600
4,53,600 4,53,600
Working Notes:
(1) Value of Tempo left with the buyer
Number of Tempos: One
Cash Price:(` 4,00,000 x 1) ` 4,00,000
Less: Depreciation @ 20% p.a. on diminishing
Balance Method for one year (First year 2005) 80,000
Value of Tempo left with the buyer ` 3,20,000
at the end of the First year
Less : Depreciation @ 20% p.a. (for 2006) 6,400
Value of the tempo left with the buyer at
the end of 2nd year 2,56,000
(2) Value of tempo taken away by the seller
Number of Tempos: Two
Cash Price (Cost) [` 4,00,000 x 2] ` 8,00,000
Depreciation 30% as per W.D.V. method for
2 years i.e., ` 2,40,000 + ` 1,68,000 = ` 4,08,000 . 4,08,000
Value of tempos taken away at the end of the 2nd year 3,92,000
(3) (i) Book value of two tempos on 31.12.06 = ` 8,00,000 - (` 1,60,000
- Depreciation First Year) -(` 1,28,000-Depreciation as per W.D.V, 2nd Year) = ` 5,12,000
(ii) Value of tempos taken (as per Note 2) = ` 3,92,000
(iii) Loss due to default (i - n) i.e., ` [5,12,000 - 3,92,000] = ` 1,20,000
A. Ltd. purchased a machine on hire-purchase system from B. Ltd., on 1st Jan. 2006, paying
immediately ` 20,000 and agreeing to pay three instalments of ` 20,000 each on 31st December every
year. The cash price of the machine is ` 74,500 and vendors charge interest at 5% p.a. Depreciation is
charged @ 20% p.a. on diminishing balance method. Calculate the amount of interest paid by buyer to
the seller every year and also prepare important Ledger Accounts in the books of A. Ltd. (14)
Sol.
Calculation of Interest: `
Total Cash Price of the Machinery 74,500

54,500
57,225
Legs : First Hire Purchase Instalment 20,000
37,225
39,086
Less : Second Hire Purchase Instalment 20,000
19,086
Add: Interest (Balancing Figure i.e., ` 20,000 - ` 19,086) 914
20,000
less : Third Hire Purchase Instalment 20,000
Note : 1. The interest is calculated on the outstanding total cash price and not on the outstanding total
instalments.
2. In the last year, interest is the difference between the last instalment paid and cash price remaining unpaid.
In the books of A Ltd.
Machinery Account Cr.
` `
2006 2006
Jan. 1 To B Ltd. 74,500 Pec. 31 By Depreciation A/c 14,900
- Dec. 31 By Balance c/d 59,600
74,500 74,500
2007 2007
59,600 59,600
2008 2008

47,680 47,680
Dr. B's Account Cr.
` `
2006 2006
Jan. 1 To Bank A/c. 20,000 Jan. 1 By Machine A/c 74,500
Dec. 31 To Bank A/c 20,000 Dec. 31 By Interest A/c
Dec. 31 To Balance c/d 37,225 (5% on ` 54,500) 2,725
77,225 77,225
2007 2007
Dec. 31 To Balance c/d 19,086 Dec. 31 By Interest A/c
(5% on ` 37,225) 1,861
\ 39,086 39,086
2008 2008
-. Dec. 31 By Interest A/c
` (20,000-19,086) 914
20,000 20,000
Q. 4. (a) Angel Cabs purchased 3 cars costing ` 5,00,000 each from Freedom Motors on 1st April, 2012
on hire-purchase basis. The terms of delivery were as follows:
(i) 20% of the cash price to be paid on signing the agreeement.
(ii) Balance in three annual instalments plus interest.
(iii) Interest is charged on outstanding balance ® 20% as per diminishing balance method.
Angel Cabs could not pay the final instalment. Freedom Motors repossessed 2 cars on 31st March,
2015 by charging depreciation @ 30% as per diminishing balance method. Additionally, they spent `
40,000 on repairs and sold the 2 cars for a total price of ` 4,00,000. Assume that their books are closed
on 31st March every year, show Cars Account and Freedom Motors Account in the books of Angel Cab
and Angel Cabs' Account and Goods Repossessed Account in the books of Freedom Motors. (13)
Sol.
Calculation of Interest
Date Cash Price Interest Instalment
1st April, 15,00,000 3,00,000 (Down
2012 (5,00,000 x 3) Payment)
31st March, 2013 4,00,000 12,00,000 x 10/100
= 1,20,000 5,20,000(1)
31st March, 2014 4,00,000 8,00,000 x 10/100
= 80,000 4,80,000 (II)
31st March, 2015 4,00,000 4,00,000 x 10/100
= 40,000 4,40,000 (III)
Value of 2 Cars Repossessed `
Cash Price : 5,00,000 x 2 10,00,000
Less : Depreciation @ 30% WDV (Year 1) 3,00,000
Balance as on 31/3/13 7,00,000
Less: Depreciation @ 30% WDV (Year 2) 2,10,000
Balance as on 31/3/14 4,90.000
Less: Depreciation @ 30% WDV (Year 3) 1,47,000
Balance as on 31/3/15 3,43,000
Loss on Repossession `
Value of 2 cars as per Angel Cabs
as on 31st March, 2015 (2,56,000 x 2) 5,12,000
Less: Value as per Hire Vendor 3,43,000
1,69,000
Value of 1 Car left with Angel Cabs `
Cash Price 5,00,000

Less: Depreciation @ 20% on WDV 1,00,000
Balance as on 31/3/13 4,00,000
Less: Depreciation @ 20% on WDV 80,000 .
Balance as on 31/3/14 3,20,000
Less; Depreciation @ 20% on WDV 64,000
Balance as on 31/3/15 2,56,000
In the Books of Angel Cabs
Cars A/c
2012 2013
April 1 To Freedom Motors 15,00,000 March 31 By Depreciation A/c 3,00,000
A/c March 31 By Balance c/d 12,00,000
15,00,000 15,00,000
2013 2014
April 1 To Balance b/d 12,00,000 March 31 By Depreciation A/c 2,40,000
12,00,000 12,00,000
2014 2015 /
April 1 To Balance b/d 9,60,000 March 31 By Depreciation A/c 1,92,000
By Freedom Motors A/c 3,43,000
By Profit & Loss A/c 1,69,000
, {Loss on Repossession)
9,60,000 9,60,000
Freedom Motors A/c
2012 2012
April 1 To Bank A/c 3,00,000 April 1 By Cars A/c 15,00,000

(Down Payment)
2013 2013
March 31 To Bank A/c (I) 5,20,000 March 31 By Interest A/c 1,20,000
March 31 To Balance c/d 8,00,000
16,20,000 16,20,000
2014 2013
March 31 To Bank A/c (II) 4,80,000 April 1 By Balance b/d 8,00,000
March 31 To Balance c/d 4,00,000 2014
March 31 By Interest A/c 80,000
8,80,000 8,80,000
2015 2014
March 31 To Cars A/c 3,43,000 April 1 By Balance b/d 4,00,000
March 31 To Balance c/d 97,000 By Interest A/c 40,000
4,40,000 4,40,000
In the Books of Freedom Motors
Angel Cabs A/c
2012 2012
April 1 To HP Sales A/c 15,00,000 April 1 By Bank A/c 3,00,000
2013 2013
March 31 To Interest A/c 1,20,000 March 31 By Bank A/c 5,20,000
16,20,000 16,20,000
2013 2014
April 1 To Balance b/d 8,00,000 March 31 By Bank A/c 4,80,000
2014
March 31 To Interest A/c 80,000 By Balance c/d 4,00,000
8,80,000 8,80,000
2014 2015
April 1 To Balance b/d 4,00,000 March 31 By Goods
2015 Repossessed A/c 3,43,000
March 31 To Interest A/c 40,000 By Balance c/d 97,000
4,40,000 4,40,000
Goods Repossessed A/c
Particulars ` Particulars `
To Angel Cabs A/c 3,43,000 By Cash A/c 4,00,000
To Cash A/c (Repairs) 40,000
4,00,000 4,00,000
Q. 5. On lstApril, 2009, Tanisha purchased a machine on hire-purchase system from Shallu Imports Ltd. The
payment was to be made Rs.3,00,000 down and balance in four equal annual instalments of Rs.2,00,000 each
payable on 31st March every year. The Vendors charged interest @ 10% p.a. Tanisha was providing
depreciation @ 10% p.a. on diminishing balance method. She paid the two instalments but could not pay the
third instalment because of which the Vendors took away the machine. They sold it for Rs.3,50,000 after
paying Rs.10,000 on its repairs.
Prepare Machine Account and Vendors' Account in the books of Tanisha and Tanisha's Account in the books
of Shallu Imports Ltd. 10
Sol. See Q. 12, Unit V [Accounting for Hire Purchase Transactions],
[Page P-130 Or
X purchased 3 cars for a total cash price of Rs.4,50,000 on hire purchase basis on 1st January 2010. The terms
of agreement provided for Rs.1,35,000 as cash down and the balance of the cash price in three equal annual
instalments together with interest @ 10% p.a. The instalments were payable at the end of each year. Mr. X
paid the first instalment on time but failed to pay thereafter. On his failure to pay the second instalment, hire
vendor repossessed two cars and valued them at 50% of cash price. Mr. X charges depreciation on written
down value method @ 25% p.a. On repossession the vendor spent Rs.10,000 on repairs of the car and sold
one car at Rs.90,000.
Show the following accounts:
(a) Car account & Hire Vendor's account in the books of Mr. X.
(b) Mr. X's Account & Goods Repossessed Account in the books of Hire Vendor.
Sol. See Q. 14, Unit V [Accounting for Hire Purchase Transactions], [Page P-132
X Transport Ltd. purchased from Manish Motors 3 Tempos costing Rs.4,00,000 each on hire-purchase basis
on 1.1.2005. 25% of the cost was to be paid down and the balance in 3 equal annual instalments together with
interest @ 9% at the end of each year. X Transport Ltd. paid the instalment due on 31 st December, 2005, but
could not pay thereafter. Manish Motors agreed to leave one tempo with the purchaser on 1-1-2007 adjusting
the value of the other two tempos against the amount due on that date. The tempos recovered were valued on
the basis of 30% Depreciation annually on W.D.V.
X Transport Ltd. charges Depreciation on tempos @ 20% on diminishing balance method. M/s Manish Motors
incur Rs.40,000 on repairs of tempos repossessed and resold them at a profit of 5% on total cost. Write up
necessary ledger Accounts in the books of both parties giving effect to the above transactions. 14
(b) In the Books of X Transport Ltd.
Dr. Tempos (on Hire Purchase) Account Cr.
Date Particulars Rs. Date Particulars Rs.
1-1-05 To Manish Motors' A/c 12,00,000 31-12-05 By Depreciation A/c (20%) 2,40,000
( Rs.4,00,000 x 3) By Balance c/d 9,60,000
12,00,000 12,00,000
1-1-06 To Balance b/d 9,60,000 31-12-06 By Depreciation A/c (20%) 1,92,000
By Manish Motors’ A/c 3,92,000
By Loss on Repossession 1,20,000

A/c
9,60,000 9,60,000
Dr. Manish Motors' Account Cr.
Date Particulars Rs. Date . Particulars Rs.
1-1-05 To Bank A/c 3,00,000 1-1-05 By Tempos on Hire

Purchase
( Rs.12,00,000 x 25%) A/c ( Rs.4,00,000 x 3) 12,00,000
31-12-05 To Bank A/c 3,81,000 By Interest A/c 81,000
Rs.(3,00,000 + 81,000) ( Rs.9,00,000 × 9/100)
31-12-05 To Balance c/d 6,00,000 31-12-05

12,81,000 12,81,000
31-12-06 To Tempos on Hire Purchase 3,92,000 1-1-06 By Balance b/d 6,00,000
A/c Rs.(3,00,000 + 54,000) By Interest A/c 54,000
31-12-06 To Balance c/d (Bat. figure) 2,62,000 31-12-06 ( Rs.6,00,000 × 9/100)
6,54,000 6,54,000
In the Books of Manish Motors
Dr. X Transport Ltd. Account Cr.
1-1-05 To Hire Purchase sales A/c 12,00,000 1-1-05 By Bank A/c
31-12-05 To Interest A/c 81,000 ' ( Rs.12,00,000 x 25%) 3,00,000
31-12-05 By Bank A/c 3,81,000
31-12-05 By Balance c/d 6,00,000
12,81,000 12,81,000
1-1-06 To Balance b/d 6,00,000 31-12-06 By Goods Repossessed A/c 3,92,000
31-12-06 To Interest A/c 54,000 31-12-06 By Balance c/d (Bal.fig.) 2,62,000
6,54,000 6,54,000
Dr. Goods Repossessed Account Cr.
31-12-06 To Manish Motors’ A/c 3,92,000 31-12-06 By Bank A/c 4,53,600
31-12-06 To Bank A/c (Repairs) 40,000 (Balancing Figure)
31-12-06 To Profit & Loss A/c (Profit) 21,600

Rs.(3,92,000+40,000) x 5
4,53,600 4,53,600
Working Notes:
Rs.
(0 Cost price (3 x Rs.4,00,000) 12,00,000

Less: Down Payment @ 25% (Rs.12,00,000 × 25/, 00) (3,00,000)
Balance on 1st Jan. 2005 9,00,000
Add: Interest @ 9% on 31.12.2005 81,000
Less: Payment [(Principal (Rs.3,00,000) + Interest (Rs.81,000)] (3,81,000)
Balance on 1st Jan. 2006 6,00,000
Add: Interest @ 9% on 31 December, 2006 54,000
6,54,000
(ii) Calculation of loss on Repossession
X Ltd. Rs. M/s Manish Motors Rs.
3 Tempos on 1-1-2005 12,00,000 2 Tempos 1-1-2005 8,00,000
(3 x 74,00,000) (2,40,000) (2 x 74,00,000) (2,40,000)
Less: Dep. on 31-12-2005 (20%) Less: Dep. on 31-12-2005 (30%)
Balance on 1st Jan, 2006 9,60,000 Balance on 1-1-2006 5,60,000
Less: Dep. on 31-12-2006 (20%) (1,92,000) Less: Dep. on 31-12-2006 (30%) (1,68,000)
Balance on 1st Jan, 2007 Rs.,68,000 Balance on 1-1-2007 3,92,000
Value of 2 Tempos = Rs. Rs.,68,000 x 2/3 = Rs.5,12,000
Loss on Repossession = Rs.5,12,000 - Rs.3,92,000 = Rs.1,20,000
On 1st January, 2010 A purchased from B a machine on Hire Purchase basis. The hire purchase price was
Rs.80,000 payable as to Rs.20,000 as down payment and three annual instalments of Rs.20,000 each.
The first annual instalment being payable on 31 st December, 2010. Interest being charged is @ 5% p.a. Hire
purchasee charges depreciation @ 10% p.a. on diminishing balance method. The books are closed on 31 st
December each year.
Calculate cash price of the machine. Also prepare the following accounts from 1st January, 2010 to 31-12-2012
14
(i) Hire Vendor's Account (B)
(ii) Machine Account
(iii) Items which would appear in the Balance Sheet of A as on 31 st December, 2010, 2011 and 2012.
Sol.
Working note:
* Calculation of Cash Price of the machine
Year Instalment Interest Paid ( Rs.) Cash Price Paid ( Rs.)
( Rs.)
31st Dec. 2012 20,000 Rs.20,000 × 5/100 = 952 Rs.(20,000 - 952) = 19,048
31st Dec. 2011 20,000 Rs.(20,000 + 19,048) × 5/105 = 1,859 Rs.(20,000 - 1,859) =
18,141
31st Dec. 2010 20,000 Rs.(20,000 + 18,141 + 19,048) * 5/105 = Rs.(20,000 - 2,723) =
2,723 17,277
Down Payment 1st 20,000 No Interest on Down Payment 20,000

Jan. 2010
Total Cash Price 74,466
(i)
Dr. B's (Hire Vendor's) Account Cr.
1.1.10 To Bank A/c (Down Payment) 20,000 1.1.10 By Machine A/c 74,466
1.12.10 To Bank A/c (Instalment) 20,000 1.12.10 By Interest A/c 2,723
To Balance old 37,189
77,189 77,189
To Balance c/d 19,048 1.12.11 By Interest A/c 1,859
39,048 39,048
1.12.12 By Interest A/c 952
20,000 20,000
(ii) Dr. Machine Account Cr.

1.1.10 To B’s A/c 74,466 31.12.10 By Depreciation A/c (10%) Rs.,446
74,466 74,466
1.1.11 To Balance b/d 67,020 31.12.11 By Depreciation A/c-(10%) 6,702
67,020 67,020
1.1.12 To Balance b/d 60,318 31.12.12 By Depreciation (10%) 6,032
60,318 60,318
(iii)
An Extract of Balance Sheet of A as on 31st December, 2010
Liabilities Rs. Assets Rs.
Creditors for Machine (B) 37,189 Machine (on Hire Purchase) 67,020
An Extract of Balance Sheet of A
as on 31s1 December, 2011
Creditors for Machine (B) 19,048 Machine (on Hire Purchase) 60,318
An Extract of Balance Sheet of A
as on 31st December, 2012
Machine (on Hire Purchase) 54,286
III
Accounting for Hire Purchase and Instalment System
Q. 1. X Ltd. purchased 2 machines costing Rs. 80,000 each from Y Ltd. on 1st Jan. 2010 on hire
purchase system. The terms were:
Payment on delivery Rs. 20,000 for each machine; Balance in 3 equal instalments together with
interest at 10% p.a. to be paid at the end of each year.
X Ltd. writes off 25% depreciation each year on the diminishing balance method. X Ltd. paid the
instalments due on 31.12.10 and on 31.12.11 but could not pay the final instalment. Y Ltd.
repossessed one machine adjusting its value against the amount due. The repossession was done
on the basis of 30% p.a. depreciation on the Diminishing Balance Method. The vendor spent Rs.
8,560 for the repairs and overhauling of the machine and sold it for Rs. 40,000.
Pass Journal entries in the books of Y Ltd. and prepare Ledger Accounts in the books of 'X' Ltd.
[2008
Sol. Ledger of X Ltd.
2010 2010
Jan. 1 To Y Ltd. 1,60,000 Dec. 31 By Depreciation A/c 40,000
[Rs. 1,60,000 x 25/100]
1,60,000 1,60,000
2011 2011
Jan. 1 To Balance b/d 1,20.000 Dec. 31 By Depreciation A/c 30,000
[Rs. 1,20,000 x 25100]
1,20,000 1,20,000
2012 2012
[Rs. 90,000 x 25/100]
By Y Ltd. (Machine 27,440

seized)*1
By Profit & Loss A/c 6,310

(Loss
on machine seized)
By Balance c/d
(W.D.V. of
one machine still in
possession) 33,750
90,000 90,000
Dr. Y Ltd. Cr.
2010 2010
Jan. 1 To Bank A/c 40,000 Jan. 1 By Machines A/c 1,60,000
To Balance c/d 80,000 [10% of Rs. 1,20,000]
1.72,000 1,72,000
2011 2011
Rs.[40,000 + 8,000] Dec. 31 By Interest A/c 8,000
To Balance c/d 40,000 [10% of Rs. 80,000]
88,000 88,000
2012 2012
Dec. 31 To Machine A/c*1 27,440 Jan. 1 By Balance b/d 40,000
To Balance c/d 16,560 By Interest A/c 4,000
[10% of Rs. 40,000]
44,000 44,000
In the Books of Y Ltd.
Sol.
Journal Entries
Date Particulars L.F. Dr. Cr.
(Rs.) (Rs.)
2010
Jan. 1 X Ltd. Dr. 1,60,000
To Hire Purchase Sales A/c 1,60,000
(Being the goods sold on hire purchase)
Jan. 1 Bank A/c Dr. 40,000
To X Ltd. 40,000
(Being the receipt of down payment)
Dec. 31 X Ltd. Dr. 12,000
To Interest A/c 12,000
(Being the interest charged @ 10% on Rs.

1,20,000)
Dec. 31 Bank A/c (Rs. 40,000 + Rs. 12,000) Dr. 52,000
To X Ltd. 52,000
(Being the first instalment received alongwith

interest)
Dec. 31 Interest A/c Dr. 12,000
(Being the transfer of interest)
2011
Dec. 31 X Ltd. Dr. 8,000
To Interest A/c 8,000

80,000)
Dec. 31 Bank A/c [Rs. 40,000 + Rs. 8,000] Dr. 48,000
To X Ltd. 48,000
(Being the second instalment received alongwith
interest)
Dec. 31 Interest A/c Dr. 8,000
(Being the transfer of interest)
2012
Dec. 31 X Ltd. Dr. 4,000
To Interest A/c 4.000

40,000)
Dec. 31 Goods Repossessed A/c*1 Dr. 27,440
To X Ltd. 27,440
(Being one machine repossessed on default)
Dec. 31 Goods Repossessed A/c Dr. 8,560
To Bank A/c 8,560
(Being expenses incurred on the repair and

overhauling
of the machine repossessed)
Bank A/c Dr. 40,000
To Goods Repossessed A/c 40,000
(Being repossessed machine sold)
Goods Repossessed A/c Dr. 4,000
(Being Profit*2 on sale of goods

repossessed)
Working notes:
*1 Value of one machine on repossession:

2020 (Rs.) 2011 (Rs.) 2012 (Rs.)
Cost/W.D.V in the beginning 80,000 56.000 39,200
Depreciation for the year @ 30% 24,000 16,800 11,760
56,000 39,200 27,440
*2 Goods Repossessed Account
Particulars Rs. Particulars Rs.
To Y Ltd 27.440 By Bank A/c 40,000
To Bank A/c (expenses) 8.560
To Profit & Loss A/c (Profit on 4,000

Sale)
40,000 40,000
Q. 2. Jain and Co. have a hire purchase department. Goods are sold on hire purchase at cost plus
33 1/3%. From the following particulars prepare Shop Stock Account, H.P. Debtors Account,
H.P. Stock Account and H.P. Adjustment Account: [2008
1-4-12 Rs.
Stock out with H.P. customers at S.P. 4,000
Stock at shop at cost 500
Instalments due 300
1-4-12 to 31-3-13
Cash received from customers 8,000
Goods repossessed (instalment due Rs. 2,000) valued at 500
(this has been included at the end at Rs. 500)
31-3-13
Instalments due (customers paying) 500
Stock at shop at cost (including goods repossessed) 1,200
Stock out with H.P. customers at S.P. 4,600
Verify your results by preparing Hire Purchase Trading Account.

Sol.
Dr. Shop Stock Account Cr.
To Balance b/d 500 By Cost of Goods Sold A/c* 8,100
To Purchases A/c (Balancing 8,300 [Rs. 10,800 x 3/4]

figure)
By Balance c/d [Rs. 1,200 - Rs. 700

500]
8,800 8,800
*Note: Balancing figure of Hire Purchase Stock Account Rs. 10,800.
Dr. Hire Purchase (H.P.) Debtors Account Cr.
To Balance b/d 300 By Cash A/c 8,000
To Hire Purchase Stock A/c 10,200 By Repossessed Stock 500
(Balancing figure) By Hire Purchase Adjustment A/c 1,500
By Balance c/d 500
10,500 10,500
Dr. Hire Purchase (H.P.) Stock Account Cr.
To Balance b/d 4,000 By Hire Purchase Debtors A/c 10,200
To Goods sold on H.P. (Bal. 10,800 By Balance c/d 4,600

figure)
14,800 14,800
Dr. Hire Purchase (H.P.) Adjustment Account Cr.
To Stock Reserve A/c 1,150 By Stock Reserve A/c (Opening 1,000

Stock)
(Closing H.P. Stock) [74,600 x [Rs. 4,000 x 1/4]
1/4]
To H.P. Debtors A/c 1,500 By Goods sold on H.P. Stock A/c 2,700
To Profit & Loss A/c (Profit) 1,050 [Rs. 10,800 x 1/4]
3,700 3,700
Verification:
Dr. Hire Purchase Trading Account Cr.
To H.P. Stock A/c 4,000 By Cash A/c 8,000
To Instalment Due 300 By Repossessed Stock 500
To Goods sold on H.P. A/c 10,800 By Hire Purchase Stock A/c 4,600
To Stock Reserve*3 [74,600 x 1,150 By Instalment Due 500

1/4]
To Profit & Loss A/c (Profit) 1,050 By Stock Reserve*4 [74,000 x 1,000
1/4]
By Goods sold on H.P. A/c*2 2,700
[710,800 x 1/4]
17,300 17,300
Working notes:
*1 Goods are sold at a profit of 33 1/3% on cost. It means, if the cost is Rs. 100, then profit is Rs.
33.33
and hire purchase price = Rs. 100 + Rs. 33.33 = Rs. 133.33.
Therefore, loading on Hire Purchase Price = Rs. 33.33/Rs. 133.33 = 1/4
*2 Loading on goods sold on Hire Purchase = 1/4 of Rs. 10,800 = Rs. 2,700
*3 Loading on Closing Balance of Hire Purchase Stock = 1/4 of Rs. 4,600 = Rs. 1,150
*4 Loading on Opening Balance of Hire Purchase Stock = 1/4 of Rs. 4,000 = Rs. 1,000
Q. 3. Mayur Eleciricals Ltd. sells TV sets and Music systems on hire purchase basis. From the
following particulars prepare Hire Purchase Trading Account and Goods Repossessed Account
to find out the profit (show your workings clearly): [2009
T.V. Sets Music Systems
Cost Rs. 16,200 Rs. 6,000
Cash Price Rs. 8,900 Rs. 7,200
Down Payment Rs. 2,700 Rs. 1,200
Monthly Instalments Rs. 1,800 Rs. 600
Number of Instalments 10 12
During the year ended 31st December, 2013, the company sold 200 TV sets and 240 Music
systems on hire purchase basis. 4 TV sets on which only 3 instalments each could be collected
and 8 Music systems on which only 5 instalments each could be collected were repossessed for
non-payment of other instalments. These were valued at 50% of their costs and after spending
Rs. 6,000 for their reconditioning, they were sold for Rs. 84,000. Other instalments collected and
due (customers still paying) were respectively as follows:
T.V. Sets 540 and 40
Music systems 800 and 60
Sol. Working notes:
*1 Cost and H.P. Price of goods sold on hire purchase: Cost (Rs.)
T.V Sets 200 x Rs. 16,200 32,40,000
Music Systems 240 x Rs. 6,000 14,40,000
46,80,000
H.P. Price (Rs.)
T.V. Sets 200 x Rs. 20,700* 41,40,000
Music Systems 240 x Rs. 8,400** 20,16,000
61,56,000
* Rs. 2,700 + (Rs. 1,800 x 10) = Rs. 20,700

** Rs. 1,200 + (Rs. 600 x 12) = Rs. 8,400
*2 Loading on goods sold on H.P. = Rs. 61,56,000 - Rs. 46,80,000 = Rs.

14,76,000
*3 Cash collection on:
T.V. Sets Rs.
Down Payment Rs. 2,700 x 200 5,40,000
Instalments Rs. 1,800 x 540 9,72,000
On goods repossessed Rs. 1,800 x 4 x 3 21,600
15,33,600
Music Systems (Rs.)
Down Payment Rs. 1,200 x 240 2,88,000
Instalments Rs. 600 x 800 4,80,000
On goods repossessed Rs. 600 x 8 x 5 24,000
7,92,000
*4 Instalments not yet due on: (Rs.)
TV Sets
Total number of Instalments 196 x 10 1,960
Less: No. of Instalments collected + Due (540 + 40) 580
1,380
Amount due 1,380 @ Rs. 1,800 = Rs. 24,84,000
Music Systems
Total number of Instalments 232 x 12 2,784
Less: No. of Instalments Collected + Due (800 + 60) 860
1,924
Amount due 1,924 @ Rs. 600 = Rs. 11,54,400
Total Amount due = Rs. 24,84,000 + Rs. 11,54,400 = Rs. 36,38,400
*5 (0 Stock Reserve on T.V. Sets: (Rs.)
Hire Purchase Price 20,700
Less: Cost Price 16,200
Profit per Set 4,500
Stock Reserve = Rs. 4,500/Rs. 20,700 x Rs. 24,84,000 = Rs. 5,40,000
(ii) Stock Reserve on Music Systems: (Rs.)
Hire Purchase Price 8,400
Less: Cost Price 6,000
Profit per Set 2,400
Stock Reserve = Rs. 2,400/Rs. 8,400 x Rs. 2,4001I,54,400 = Rs.

3,29,829
Total Stock Reserve = Rs. 5,40,000 + Rs. 3,29,829 = Rs. 8,69,829
*6 Value of Goods Repossessed: (Rs.)
T.V. Sets: Cost of 4 Sets Rs. 16,200 x 4 64,800
Music Systems: Cost of 8 Sets Rs. 6,000 x 8 48,000
1,12,800
Valuation of Goods Repossessed = 50% of Rs. 1,12,800 = Rs. 56,400
Dr. Hire purchase Trading Account Cr.
To Goods sold on Hire 61,56,000 By Goods sold on Hire 14,76.000
Purchase A/c Purchase A/c (Loading)

To Stock Reserve A/c 8,69.829 By Cash A/c:
(Loading) T.V. sets 15,33,600
To Profit & Loss A/c 5,78,571 Music systems 7,92,000 23,25,600
By Goods Repossessed A/c 56.400
By Stock with Customers A/c 36,38,400
By Instalments Due:
T.V. Sets [40 x Rs. 1800] 72,000
Music systems [60 x Rs. 600] 36,000
76,04,400 76,04,400
To Hire Purchase Trading A/c 56,400 By Cash A/c 84,000
To Cash A/c (expenses incurred) 6,000 (Sale proceeds)
To Profit & Loss (Profit on Sale 21,600
of Goods Repossessed)
84,000 84,000
Total Profit = Rs. 5,78,571 + Rs. 2l,600 = Rs. 6,00,171
Q. 4. X Co. Ltd. purchased on 01.01.2011 from M/s R.V. Traders four machines having cash
price Rs. 80,000 each on hire purchase basis. The payment was to be made as follows:
10% of cash price down, and
25% of cash price at the end of each of the following four years.
X Co. Ltd. paid the first instalment but failed to pay the second instalment due on 31.12.2012.
M/s R.V. Traders repossessed three machines leaving remaining one machine with the buyer.
The value of three machines was taken at cost less depreciation @ 20 p.a. on reducing balance
method. M/s X Co. Ltd. charges depreciation at 10% p.a. on reducing balance method on 31st
Dec. of each year.
M/s R.V. Traders spent Rs. 42,000 on overhauling of the machines repossessed and sold two of
the repossessed machines for Rs. 1,20,000. Prepare necessary Ledger Accounts in the books of
both the parties. [2020
Sol.
Books of X Co. Ltd.
Dr. M/s R.V. Traders
2011 2011
Jan. 1 To Bank A/c 32.000 Jan. 1 By Machinery A/c 3,202,000
Dec. 31 To Bank A/c 80.000 Dec. 31 By Interest A/c*1 12,800
Dec. 31 To Balance c/d 2,20,800
3,32,800 3,32,800
2012 2012
Dec. 31 To Machines A/c*2 1,53,600 Jan. 1 By Balance b/d 2,20.800
Dec. 31 To Balance c/d 76,800 Dec. 31 By Interest A/c*1 9,600
2,30,400 2,30.400
2011 2011
Jan. 1 To RV Traders A/c 3.20,000 Dec. 31 By Depreciation A/c 32,000
Dec. 31 By Balance c/d 2.88.000
3,20,000 3,20,000
2012 2012
Jan. 1 To Balance b/d 2,88,000 Dec. 31 By Depreciation A/c 28,800
By R.V. Traders A/c*2 t,53,600
By Profit & Loss A/c*4 40,800
(Loss on default)
Dec. 31 By Balance c/d*3 64.800
2,88,000 2,88,000
Books of M/s. R.V. Traders
Dr. X Co. Ltd. Account Cr.
2011 2011
Jan. 1 To Hire Purchase A/c 3,20,000 Jan. 1 By Bank A/c 32,000
Dec. 31 To Interest A/c 12,800 Dec. 31 By Bank A/c 80.000
Dec. 31 By Balance c/d 2.20,800
3,32,800 3,32,800
2012 2012
Jan. 1 To Balance b/d 2,20,800 Dec. 31 By Goods Repossessed 1,53,600

A/c*2
Dec. 31 To Interest A/c 9,600 Dec. 31 By Balance c/d 76.800
2,30,400 2,30,400
2012 2012
Dec. 31 To R.V, Traders 1,53,600 Dec. 31 By Bank A/c 1,20,000
To Bank A/c 42.000 By Profit & Loss A/c*5
(Loss on Sale of
goods repossessed) 10,400
By Balance c/d*6 65,200
1,95,600 1,95,600
Working notes:
*1 Calculation of Interest
Total Cash Price of 4 machines = Rs. 80,000 x 4 = Rs. 3,20,000
Down Payment (10% of Cash Price) = Rs. 32,000

Four Instalments (25% of Cash Price) = Rs. 80,000 each
Hence Total Hire Purchase Price = Rs. 32,000 + Rs. 3,20,000 = Rs. 3,52,000
and Total Interest = Rs. 3,52,000 (Hire Purchase Price) - Rs. 3,20,000 (Cash Price) = Rs. 32,000
Interest on each instalment is calculated as follows:
Hire Purchase Price Outstanding at the beginning of each year:
Rs. 3,20,000 (1st Year), Rs. 2,40,000 (2nd Year), Rs. 1,60,000 (3rd Year), Rs. 80,000 (4th Year).
Ratio 4:3:2:1
1st Year's interest - Rs. 32,000 x 4/10 = Rs. 12,800;
2nd Year's interest = Rs. 32,000 x 3/10 = Rs. 9,600;
3rd Year's interest = Rs. 32,000 x 2/10 = Rs. 6,400;
4th Year's interest = Rs. 32,000 x 1/10 = Rs. 3,200.
*2 Value of three Machines Repossessed: Rs.
Cost of Machines (Rs. 80,000 x 3) 2,40,000
Less: Depreciation @ 20%: 1st year 48,000
1,92,000
Less: Depreciation @ 20%: 2nd year 38,400
1,53,600
*3 Value of one Machine left with the buyer:
Cost of Machine 80,000
Less: Depreciation @ 10%: 1st year 8,000
72,000
Less: Depreciation @ 10%: 2nd year 7,200
64,800
*4 Calculation of Loss on default:
Book Value of three machines on the date of default
[3/4 (Rs. 2,88,000 - Rs. 28,800)] Or 3/4 (Rs. 2,59,200) 1,94,400

Agreed Value of three machines taken away by the seller*2 1,53,600
Loss on default 40,800
*5 Calculation of Loss on Sale of Goods repossessed:
(i) Value of 3 machines repossessed (71,53,600 + Rs. 42,000) 1,95,600
(ii) Value of 2 machines repossessed (Rs. 1,95,600 x 2/3) 1,30,400
Less: Sale of 2 machines repossessed 1,20,000
Loss on Sale of 2 machines 10,400
*6 Value of one machine in Stock = Rs. 1,95,600/3 = Rs. 65,200
Q. 5. Deepak purchased four second-hand cars on hire purchase system. Cash price being Rs.
52,500 each. The hire purchase price for all the four cars was Rs. 2,40,000. The payment was to
be made Rs. 60,000 on signing the agreement and three instalments of Rs. 60,000 each at the end
of each of the three years. Deepak charges depreciation @ 10% p.a. on Straight Line Method.
Deepak paid the down payment and first instalment but could not pay the second instalment. The
vendor, after negotiations, took back three cars. These cars were taken back after depreciating
them @ 20% p.a. on Written Down Value method. One car was left with the purchaser.
The vendor spent Rs. 3,600 on repairs and sold two of these cars for Rs. 80,000.
Show necessary Ledger Accounts in the books of both the parties. [2011
Sol.
Table Showing Interest and
Cash Price Payments
Cash Price (Rs.) interest (Rs.) Hire Purchase Price (Rs.)
Down Payment 60,000 Nil 60,000
1st Instalment 45,000 15,000 60,000
2nd Instalment 50,000 10,000 60,000
3rd Instalment 55,000 5,000 60,000
2,10,000 30,000 2,40,000
Total interest is allocated over three years in the ratio of 3 : 2 :1.

Three years are marked as Y1, Y2, and Y3
Books of Hire Purchaser (Deepak)
Dr. Hire Vendor's Account Cr.
01-04- To Bank A/c (Down 60,000 01-04-Y1 By Cars A/c 2,10,000

Y1 payment]
31-03- To Bank A/c (1st 60.000 31-03-Y2 By Interest A/c 15,000

Y2 Instalment)
31-03- To Balance c/d 1,05,000

Y2
2,25,000 2,25,000
31-03- To Cars A/c*1 1,00,800 01-04-Y2 By Balance b/d 1,05,000

Y2 (Repossession;
31-03- To Balance c/d 14,200 31-03-Y3 By Interest A/c 10,000

Y3
1,15,000 1,15,000
Dr. Cars Account (Asset) Cr.
01-04-Y1 To Hire Vendor's A/c 2,10,000 31-03-Y2 By Depreciation A/c 21,000
(Cash Price of cars) (10% SLM)
2,10,000 2,10,000
01-04-Y2 To Balance b/d 1,89.000 31-03-Y3 By Depreciation A/c 21,000
(10% SLM on all cars)
By Hire Vendor's A/c*, 1,00,800
(Repossessed)
By Loss on Cars
Repossessed A/c*3 25,200

(one car)*3
1,89,000 1,89,000
Books of Hire Vendor
Dr. Hire Purchaser's Account Deepak) Cr.
01-04-Y1 To Sales A/c 2,10,000 01-04-Y1 By Bank A/c (Down 60,000

Payment)
31-03-Y2 To Interest A/c 15,000 31-03-Y2 By Bank A/c (1st 60,000

Instalment)
31-03-Y2 By Balance c/d 1,05,000
2,25.000 2,25,000
01-04-Y2 To Balance b/d 1,05,000 01-04-Y2 By Goods Repossessed 1,00,800

A/c
31-03-Y3 To Interest A/c 10,000 (3 cars)
31-03-Y3 By Balance c/d*2 14,200
1,15,000 1,15,000
31-03-Y2 To Hire Purchaser's A/c 1,00,800 By Bank A/c 80,000
(Deepak) (Sale of two cars)
To Bank A/c (Repairs) 3,600 By Balance c/d 34,800
To Profit on Goods 10,400 (one car) 1/3 of
Repossessed A/c Rs.[1,00,800+3,600]
1,14,800 1,14,800
Working notes:
*1 Value of Goods repossessed (Three cars) with the Vendor is calculated Rs.
as:
Cost of 3 cars (@ Rs. 52,500) 1,57,500
Less: Depreciation (@ 20% p.a. w.d.v. for 2 years): I Year (31,500)
II Year (25,200)
7,00,800
*2 Balance Rs. 14,200 is yet to be received from the Hire Purchaser.
*3 Value of the car/s with the Hire Purchaser/Hire Vendor. One car Three cars
(Rs.) (Rs.)
Cost Price 52,500 1,57,500
. Less: Depreciation @ 10% p.a. (SLM) I Year (5,250) (15,750)
II Year (5,250) (15,750)
42,000 1,26,000
Loss to Hire Purchaser on Repossession = (Rs. 1,26,000 - Rs. 1,00,800) = Rs. 25,200
*4 Profit on Goods repossessed resold (two cars) Rs. 10,400 is to be transferred to Profit &
Loss
Account at the end of the year.
Q. 6. X Sells goods on hire purchase basis also. He fixes hire purchase price by adding 50%
to the cost of goods to him. The following are the figures relating to the hire purchase
business for the year 2012: [2011 Sem
Balance on Hire purchase Stock Account on 1st January, 2012 1,20,000
Balance on Hire purchase Debtors Account on 1st January, 2012 3,000
Selling Price of the goods sold on Hire purchase basis during the year 9,06,000
Cash received from customers 9,24,000
Total amount of instalments that fell due during the year 2012 9,27,000
One customer to whom goods had been sold for Rs. 12,000 paid only three
instalments of Rs. 1,000 each. On his failure to pay the monthly instalment of
11,000 due on 4th Dec. 2012, the goods were repossessed on 27-12-2012 after
legal notice. Prepare Hire Purchase Trading Account for the year ended 31-12-
2012. Also verify your answer by preparing Hire Purchase Adjustment Account.
Sol.
Hire Purchase Trading Account
Dr. (In Hire Vendor's Books) Cr.
01-01- To Balance b/f 01-01- By Balance b/f

12 12
HP. Stock A/c 1,20,000 H.P. Stock Res. A/c 40,000
H.P. Debtors A/c 3,000 31*12- By Goods sold on H.P.

12 A/c
31-12- To Goods sold on H.P. (RP of Goods sold) 3,02,000

12 A/c
(HPP) 9,06,000 By Goods Repossessed

A/c
To Balance c/f (value)* 6,000
HP. Stock Reserve A/c 30,333 By Bank A/c 9,24,000

(RP)
To P&L A/c (Net Profit) 3,08,667 By Balance c/f
H.P. Stock A/c (HPP) 91,000
H.P. Debtors A/c 5,000
13,68,000 13,68,000
Dr. Hire Purchase Stock Account Cr.
2012 2012
Jan. 1 To Balance b/f 1,20,000 Jan. 1 By HP Debtors A/c 9,27,000

To Goods sent on HP A/c 9,06,000 By HP Debtors A/c 8,000
(HPP)
By Balance of 91,000
10,26,000 10,26,000
Dr. Hire Purchase Debtors Account Cr.
2012 2012
Jan. 1 To Balance b/f 3,000 Jan. 1 By Bank A/c 9,24,000
To H.P. Stock A/c 9,27,000 By Goods Repossessed 6,000

A/c*1
To HP. Stock A/c (CP of 8,000 By Bad Debts 3,000

Goods
Repossessed) By Balance c/f 5,000
9,38,000 9,38,000
Dr. Hire Purchase Adjustment Account Cr.
Particulars Rs. Particulars Amt. (Rs.)
To H.P. Stock Res A/c (RP of HP 30,333 By HP Stock A/c 40,000
Stock A/c at the end) 1/3 x (RP of Opening Stock)

91,000)
To Gross Profit (Balancing 3,11,667 By Goods sold on HP A/c (RP of

figure)
Goods sold on HP during the 3,02,000

year)
3,42.000 3,42,000
Dr. Hire Purchase Profit & Loss Account Cr.
To Bad Debts 3,000 By HP Adjustment A/c (GP) 3,11,667
To Net Profit (Balancing figure) 3,08,667

3,11,667 3,11,667
Working notes:
*1 Value of Goods Repossessed is cost price of Amount due or remaining unpaid, i.e., 2/3 x Rs.
9,000 = Rs. 6,000. It should not be more than this as per LCM Principle.
Q. 7. X Sells goods on hire purchase basis, the price being cost plus 50%. From the
following information calculate profit by preparing Ledger Accounts on Stock and debtor
system for the year ended 31st March, 2012. [2022
April 1st 2012 Rs.
Stock at the shop at cost 1,08,000
Stock on hire at selling price 54,000
Instalment due at beginning 30,000
Received from customers 3,60,000
Goods Repossessed (Instalment due Rs. 12,000) 3,000
Instalment due at the end 54,000
Closing Stock at shop including goods repossessed 1,23,000
Purchases made during the year 3,60,000
Sol.
Dr. Shop Stock Account Cr.
To Balance b/d 1,08,000 By Goods sold on HP A/c 3,48,000
To Purchases A/c 3,60,000 (Cost Price) {Balancing figure)
Less: Goods Reposs. 3,000 1,20,000
4,68,000 4,68,000
Dr. Hire Purchase Stock Account Cr.
To Balance b/d 54,000 By Hire Purchase Debtors A/c 3,96,000

To Goods sold on Hire Purchase 5,22,000 By Balance c/d f,80,000
A/c
Rs.[3,48,000 + 50%] {Balancing figure)
5,76,000 5,76,000
Dr. Hire Purchase Debtors Account Cr.
To Balance b/d 30,000 By Bank A/c 3,60,000
To Hire Purchase Stock A/c 3,96,000 By Goods "Repossessed A/c 12,000
{Balancing figure) By Balance c/d 54,000
4,26,000 4,26,000
To Stock Reserve A/c (Closing) 60,000 By Stock Reserve A/c (Opening) 18,000
[Rs. 1,80,000 x 50/150] [Rs. 54,000 x 50/150]
To Goods Repossessed A/c 9,000 By Goods Sold on H.P A/c 1,74,000
(Loss on Repossession) (Load) [Rs. 5,22,000 x 50/150]
To Profit on Hire Purchase 1,23,000
1,92,000 1,92,000
Q. 8. X purchased 5 trucks on 1st Oct., 2011, the cash price of each truck being Rs. 11 lakh. X
was to pay 20% of the cash price at the time of delivery and 25% of cash price at the end of each
of the subsequent four half yearly periods beginning from 31st March, 2012.
On X's failure to pay the instalment due on 30th September, 2012, it was agreed that X could
keep three trucks, on the condition that value of two trucks would be adjusted against the amount
due, the trucks being valued at cost less 25% depreciation.
Show the necessary ledger accounts in the books of X, assuming that his books are closed on 31st
March each year and he charges depreciation @15% on original cost of trucks. [2013
Sol. In X's Ledger
Dr. Trucks on Hire Account Cr.

01-10- To Hire Vendor A/c 55,00,000 31-03- By Depreciation A/c 4,12,500

11 12
(Rs. 55,00,000 x 6/12 x

15/100)
31-03- By Balance c/d 50,87,500

12
55,00,000 55,00,000
01-04- To Balance b/d 50,87,500 30-09- By Depreciation A/c*2 1,65,000

12 12
30-09- By Hire Vendor A/c*3 16,50,000

12
30-09- By Loss on Default*4 2,20,000

12
(to be trans, to
Profit & Loss A/c)
31-03- By Depreciation A/c 4,95,000

13
(for full year
on 3 trucks)
[Rs. 33,00,000 x
15/100]
50,87,500 50,87,500
Dr. Hire Vendor's Account Cr.
01-10- To Bank A/c 11,00,000 01-10- By Trucks on Hire A/c 55,00,000

11 11
31-03- To Bank A/c 13,75,000 31-03- By Interest A/c *1 4,40,000

12 12
31-03- To Balance c/d 34,65,000

12
59,40,000 59,40,000
30-09- To Trucks on Hire A/c 16,50,000 01-04- By Balance b/d 34,65,000

12 12
31-09- To Balance c/d 21,45,000 30-09- By Interest A/c*1 3,30,000

12 12
37,95,000 37,95,000
Working notes:
*1 Calculation of Interest:
Cash Price = Rs. 11,00,000 x 5 = Rs. 55,00,000
Down Payment = 20% of Rs. 55,00,000 = Rs. 11,00,000
Instalment = 25% of Rs. 55,00,000 = Rs. 13,75,000
Hire Purchase Price = Down Payment + Total Instalments
= Rs. 11,00,000 + Rs. 55,00,000 = Rs. 66,00,000
Total Interest = Hire Purchase Price - Cash Price
= Rs. 66,00,000 - Rs. 55,00,000 = Rs. 11,00,000
Interest for the first six months (four instalments) = Rs. 11,00,000 x 4/10 = Rs. 4,40,000
Interest for the second six months (three instalments)= Rs. 11,00,000 x 3/10 = Rs. 3,30,000
Interest for the third six months (two instalments) = Rs. 11,00,000 x 2/10 = Rs. 2,20,000
Interest for the fourth six months (one instalment) = Rs. 11,00,000 x 1/10 = Rs. 1,10,000
*2 Calculation of Depeciation on two trucks taken away after 6 months:
= Rs. 22,00,000 x 6/12 x 15/100 = Rs. 1,65,000
*3 Calculation of agreed value of two trucks repossessed:
= Rs. 22,00,000 (Cash Price) - 25% of Rs. 22,00,000 = Rs. 16,50,000

*4 Calculation of loss on default: Rs.
Cost of two trucks repossessed 22,00,000
Less: Depreciation at 15% (or one year 3,30,000
Book Value on 30-9-2012 18,70,000
Loss on default (Rs. 18,70,000 - Rs. 16,50,000) = Rs. 2,20,000
Q. 9. Saksham Ltd. sold three cars for a total cash price of Rs. 9,00,000 on hire purchase basis to
Mr. Vardaan on 1st January, 2010. The terms of agreement provided for Rs. 2,70,000 as cash
down and the balance of the cash price in three equal instalments together with interest at 10%
p.a. The instalments were payable at the end of each year. Mr. Vardaan paid the first instalment
on time but failed to pay thereafter. On his failure to pay the second instalment, Saksham Ltd.
repossessed two cars and valued them at 50% of the cash price. Mr. Vardaan charges 25% p.a.
depreciation on written down value method. Prepare necessary Ledger Accounts in the books of
both the parties. [2014
Sol.
In the Books of Mr. Vardaan
Dr. Saksham Ltd.'s Account Cr.
01.01.201 To Bank A/c 2,70,000 01.01.201 By Cars A/c 9,00,000

0 0
31.12.201 To Bank A/c 2,73,000 31.12.201 By Interest A/c 63,000

0 0
Rs.P.10.000 + [10%ofRs. 6,30,000]

63,000]
9,63,000 9,63,000
31.12.201 To Cars A/c 3,00,000 01.01.201 By Balance b/d 4,20,000

1 1
31.12.201 To Balance c/d 1,62,000 31.12.201 By Interest A/c 42,000

1 1
4,62,000 4,62,000
01.01.201 By Balance b/d 1,62,000
2
Dr. Cars Account Cr.
Date . .... Particulars Rs. Date Particulars Rs.
01.01.201 To Saksham Ltd. 9,00,000 31.12.201 By Depreciation A/c 2,25,000

0 0
9,00,000 9,00,000
01.01.201 To Balance b/d 6,75,000 31.12.201 By Depreciation A/c 1,68,750

1 1
By Saksham Ltd.*1 3,00,000
By P&LA/c 37,500
(Bal. figure-Loss)
By Balance c/d*2 1,68,750
6,75,000 6,75,000
Working notes:
*1 Calculation of the value of the two cars Repossessed: (Rs.)
Cash Price of two cars 6,00,000
Value of two cars repossessed @ 50% of Rs. 6,00,000 3,00,000
*2 Calculation of the value of one car left with Mr. Vardaan:
Cash Price 3,00,000
2,25,000
1,68,750
In the Books of Saksham Ltd.

Dr. Mr. Vardaan's Account Cr.
01.01.201 To Hire Sales A/c 9,00,000 01.01.201 By BankA/c 2,70,000

0 0
31.12.201 To Interest A/c 63,000 31.12.201 By BankA/c 2,73,000

0 0
31.12.201 By Balance c/d 4,20,000

0
9,63,000 9,63,000
01.01.201 To Balance b/d 4,20,000 31.12.201 By Goods Rep. A/c 3,00,000

1 1
31.12.201 To Interest A/c 42,000 31.12.201 By Balance c/d 1,62,000

1 1
4,62,000 4,62,000
01.01.201 To Balance b/d 1,62,000

2
Q. 10. A Ltd. sells goods on hire purchase at cost plus 60%. From the following information
calculate profit or loss for the year ending 31st March, 2013 under Stock and Debtors system:
[2024 Nov.
2012 Rs.
April 1 Instalments Not Due 1,60,000
2013
March 31 Goods sold on hire purchase at hire purchase price 8,00,000
Cash received during the year 5,60,000
Goods repossessed (instalments due Rs. 20,000) valued 3,000
at Goods with hire purchase customers 3,60,000
Sol. Let the cost be = 100
Hire Purchase Price = 100 + 60 = 160
Loading = 60/160
Dr. Instalments Not Due Account Cr.
To Balance b/d 1,60,000 By Instalments Due A/c 9,40,000
To Shop Stock A/c By Balance c/d (Balancing figure) 20,000
Rs.[8,00,000 - 3,00,000]* 5,00,000
To Hire Purchase Adjustment A/c
[Rs. 8,00.000 x 60/160] 3,00,000
9,60,000 9,60,000
= Rs. 8,00,000 x 60/160 = Rs. 3,00,000
Dr. Instalments Due Account Cr.
To Instalments Not Due A/c 9,40,000 By Cash A/c 5,60,000
By Goods Repossessed A/c 3,000
By H.P. Adjustment A/c 17,000
9,40,000 9,40,000
To Instalment Due A/c 17,000 By Stock Reserve A/c (Opening)
To Stock Reserve (Closing) Rs. 1,60,000 x 60/160] 60,000
[Rs. 20,000 x 60/160] 7,500 By Instalment Not Due A/c 3,00,000
To General Profit & Loss A/c
(Balancing figure) 3,35,500
3,60,000 3,60,000
Q. 11. Vikrant sells goods on hire purchase at cost plus 60%. From the following
particulars for the year ending on 31-12-2014, prepare: [2015
(i) Hire Purchase Debtors Account

(ii) Hire Purchase Stock Account
(iii) Shop Stock Account and
(iv) Hire Purchase Adjustment Account
1-1-2014 Rs.
Stock with hire purchase customers at selling price 12,000
Stock at the shop at cost 5,000
Instalments overdue 8,000
31-22-2024
Stock at the shop at cost (including goods repossessed Rs. 400) 2,000
Total instalments that fell due during the year 1,89,440
Cash received from customers
(including down payments of Rs. 1 5,440) 1,75,440
Goods repossessed (instalment due Rs. 500) 400
Purchases during the year 1,20,000
Hire expenses 3,400
Sol. Dr. Hire Purchase Debtors Account Cr.
To Balance b/d 8,000 By Cash A/c 1,75,440
To Hire Purchase Stock A/c 1,89,440 By Goods Repossessed 500
By Balance c/d (Balancing 21,500

figure)
1,97,440 1,97,440
Dr. Hire Purchase Stock Account (at HPP) Cr.
To Balance b/d 12,000 By Hire Purchase Debtors A/c 1,89,440

To Goods sold on Hire Purchase By Balance c/d (Balancing 20,000
A/c figure)
[Rs. 1,23,400 x 160/100] 1,97,440
2,09,440 2,09,440
Dr._______ Stock at Shop Account (at Cost) Cr.
To Balance b/d 5,000 By Goods sold on Hire Purchase

A/c
To Purchases A/c 1,20,000 (Balancing figure) 1,23,400
By Balance c/d Rs.(2,000 - 400) 1,600
(Excluding goods repossessed)
1,25,000 1,25,000
To Balance b/d 5,000 By Stock Reserve A/c 4,500
To Goods Repossessed A/c 100 [Rs. 12,000 x 10/160]
(Loss on repossession of goods) By Goods sold on Hire Purchase

A/c
(Rs. 500 - 400) [Rs. 1,97,440 x 60/160] 74,040
To Hire Expenses A/c 3,400
To Stock Reserve A/c
[Rs. 20,000 x 60/160] 7,500
To Profit & Loss A/c (Profit)- 62,540
78,540 78,540

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Prarmod purchased four machines of Rs. 14,000 each from Shiva under His Purchase system.

In the Books of Pramod

Machines on Hire Purchase Account

1st Year 1st Year

Beginning To Shiva's A/c End By Depreciation A/c 5,600

(4 × ` 14,000) 56,000 End By Balance c/d 50,400

IInd Year IInd Year

Beginning To Balance b/d 50,400 End By Depreciation A/c 5,040

End By Shiva's A/c 26,880

End By Profit & Loss 7,140

End By Balance c/d 11,340

1st Year 1st Year

Beginning To Bank A/c Beginning By Machines on Hire

End To Bank B/c 15,000 End By Interest A/c 2,000

End To Balance c/d 28,000 (Note 1)

IInd Year IInd Year

End To Machines on Hire Beginning By Balance b/d 28,000

Purchase A/c 26,880 End By Interest A/c 1,333

End To Balance c/d 2,453 (Note 1)

IIIrd Year By Balance b/d 2,453

In the Books of Shiva

Ist Year Ist Year

Beginning To Hire Sales A/c 56,000 Beginning By Bank A/c 15,000

End To Interest A/c 2,000 End By Bank A/c 15,000

End By Balance c/d 28,000

IInd Year IInd Year

Beginning To Balance b/d 28,000 End By Goods 26,880

End To Interest A/c 1,333 End By Balance c/d 2,453

Goods Repossessed Account

To Pramod's A/c 26,880 By Bank A/c 35,000

To Bank A/c (Repairs) 3,120

(1) Calculation of Interest `

Total hire purchase price of four machines

= Down Payment + Instalments

- (15,000 + 3 × 15,000) = ` (15,000 + 45,000) = 60,000

Less : Total cash price of four machines (` 14,000 × 4) = 56,000

Total Interest 4,000

Total Hire purchase price 60,000

Less: Down Payment 15,000

Less: First Instalment 15,000

Less: Second Instalment 15,000

Less: Third Instalment 15,000

Ratio of Outstanding Amounts = ` 45,000 : ` 30,000 : ` 15,000 = 3:2:1

Interest on First Instalment = ` 4,000 × 3/6 = ` 2,000

Interest on Second Instalment = ` 4,000 × 2/6 = ` 1,333

Interest on Third Instalment = ` 4,000 × 1/6 = ` 667 (Not required)

(2) Calculation of the value of the Machine Retained `

Cost Price of one machine 14,000

Less: Depreciation for the 2nd Year 1,260

(3) Calculation of the value of the Machine Returned

Cash Price of three Machines (` 14,000 ` 3) 42,000

Less: Depreciation for the 1st Year (20% of ` 42,000) 8,400

Less: Depreciation for the IInd Year (20% of ` 33,600) 6,720

Value of 3 Machines in the books of Pramod :

Cash Price of 3 Machines : `

Less : Depreciation for 1st Year

(10% of ` 42,000) 4,200

Less: Depreciation for IInd Year