HirePurchaseAndSaleTransactionsPart1
Transcript of HirePurchaseAndSaleTransactionsPart1
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Hire Purchase and
Installment Sale Transactions
Part 1
IPCC Paper 1 Accounting Chapter 11
Prof. Deepak Jaggi
The Insti tute of Chartered Accountants of India
Recording Date: May 24, 2013
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1 This lecture has been delivered by faculty members to supplement the
Study Material, Practice Manual and other content
2 The views expressed in this lecture are of the Faculty Member.
3
The content of this video lecture has not been specifically discussed
by the Council of the Institute or any of its Committees and the viewsexpressed herein may not be taken to necessarily represent the viewsof the Council or any of its committees
Disclaimer Statement
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The e-Lectures, PPT, Podcastsand Video lectures on ICAI
Cloud Campus aim tosupplement the Study Material,
Practice Manual and
Supplementary Study Material
The lecture recordings are madeaccording to the syllabus andlaws existing/ applicable as on
the date of recording.
Due to changes in law, there islikely to be some time gap
between these changes and therecording of updated lectures.
Hence, students are advised torefer to the Study Material
including Supplementary StudyMaterial, if any, and other
relevant legislation for latestprovisions/ amendmentsrequired for forthcoming
examination.
Important Notes This e-Lecture was Recorded on:May 24, 2013
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Learning Objectives
(1) Understand the meaning of HirePurchase
(2) Usefulness in Practical Life
(3) Understand the various terms used
(4) Understand the meaning of
Repossession
(5) To Lay a foundation of accountingtreatment
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Hire Purchase Meaning
It is one ofSystem of
Sales
Make DownPayment
Get TheDelivery of
Assets
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Balance payment over aperiod of time in form of :
Installments
Meaning Continued
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Terms
Cash Price
Original SellingPrice
ExcludingInterest
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Down payment
Spot payment
To get thedelivery
Down Payment
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Interest
Charges
For
deferredpayments
Interest
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Installment = Principal + Interest
Periodical Payment Period of Time
Installments
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HP Price
DownPayment + AllInstallments
Cash Price +Total Interest
HP Price
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Continued
Repossession
Vendortakes theproduct back
Due to non
payment ofinstallments
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Types of Repossession
Complete/ Total
Partial
Types of Repossession
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Types of Questions
Journal &Ledger Final Accounts
RecordingStage
Ascertainmentof Profit
Types of Questions
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Recording Stage
PreparePaymentSchedule
Mainly to findout INTEREST
for eachInstallment
Recording Stage
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Question No. 1
(1) Cash Price
(2) Down Payment
(3) Installments
(4) Rate of Interest
1,49,000
40,000
40,000 /
each 3 annual installments
5% p.a.
From the following particulars, calculate interest payable in each
year by hire purchase customer.
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Answer 1 Payment Schedule
Cash Price Installments
Principle Interest
(-) Down Payment
1,49,000
40,000 40,000 0
Balance 1,09,000
First Installment40,000
(-) Int. 5,450
Balance
34,550
74,450
34,550 5,450
Second Installment
40,000
(-) Int. 3,723Balance
36,27738,173
36,277 3,723
Last Installment
40,000
(-) Cash Price 38,173
Interest 1,827 38,173 38,173 18271,49,000 11,000
Answer
1
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Entries Recording Stage
Books of Hire Purchaser
Total Assets Method
Assets A/c . Dr. (CashPrice)
To Vendors A/c
(1) ForAgreement
Vendors A/c Dr.
To Cash / Bank A/c(2) For Down
Payment
Interest A/c . Dr.
To Vendors A/c
(3) ForInstallment Due
Interest PartContd..
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Vendors A/c .. Dr.
To Cash / Bank A/c
(4) For InstallmentPaid
P+I
Depreciation A/c . Dr.
To Asset A/c
(5) ForDepreciation
% on Cash Price
Profit &Loss A/c . Dr.
To Interest A/c
To Depreciation A/c
(6) For Transfer
Entries -Continued
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Entries Recording Stage
Books of Hire Purchaser
Interest Suspense Method
All other entries will be same, except for the 1stand 3rdentry will be different as
compared to total asset method.
For Agreement : Asset A/c . Dr. (Cash Price)
Interest Suspense A/c ... Dr.(Total Interest)
To Vendors A/c (H. P. Price)
(3) For Installment due (Interest Part)
Interest A/c .. Dr.
To Interest Suspense A/c
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Entries Recording Stage
Books of Vendor
Credit Sales Method
Hire Purchaser A/c. Dr.
To Sales A/c(1) For
Agreement
Cash / Bank A/c Dr.
To Hire Purchaser A/c(2) For Down
Payment
Hire Purchasers A/c . Dr.
To Interest A/c
(3) ForInstallment Due
Interest Part
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Entries Conti..
Cash /Bank A/c .. Dr.
To Hire Purchaser A/c
(4) For InstallmentReceived
P+I
No Entry
(5) ForDepreciation
(A) Interest A/c . Dr.
To Profit & Loss A/c
(B) Sales A/c.. Dr.
To Trading A/c
(6) ForTransfer
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Entries Recording Stage
Books of Vendor Interest :Suspense
MethodAll other entries will be same, except for the 1stand 3rdentry will be different as compared tocredit Sales method.
For Agreement :
Hire Purchaser A/c . Dr. (H.P Price)
To Sales A/c (Cash Price)
To Interest Suspense A/c (Total Interest)
(3) For Installment due (Interest Part) Interest Suspense A/c .. Dr.
To Interest A/c
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Lesson Summary
Types of Questions
1) Recording Stage
Journal & Ledger
Questions of all types
Terms:-
Cash Price
Down Payment
Interest
Instalments
HP Price
Repossession
HP is a system of sales,where pay some moneynow and remaining in theform of instalment
CashPrice
NoInterest
HPPrice
AlwaysInterest
Installments
AlwaysInterest
DownPaymen
t NoInterest
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Thank you
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