Problems based on Ledger’s Preparationacc+hire+purchase+.pdf · Depreciation will be charge till...

Problems based on Ledger’s Preparation

Problem 11.

Machinery is sold on hire-purchase. The terms of payment is four annual installments of ` 6,000 at

the end of each year commencing from the date of agreement. Interest is charged @ 25% and is

included in the annual payment of ` 6,000. Show machinery A/c and Hire Vendor A/c in the

books of the purchaser who defaulted in the payment of the third yearly payment whereupon the

vendor re-possessed the machinery. The purchaser provides depreciation on the machinery @ 10%

per annum.

Solution Analysis Table

No. of Installment

Cash Price Interest Installment with Interest

DP - - -

I 2458 (6000 + 3072 + 3840 + 4800)×25/125 =3,542 6000

II 3072 (6000 + 3840 + 4800) ×25/125 =2,928 6000

III 3840 (6,000 + 4800) × 25/125 = 2,160 6000

IV 4800 6,000 × 25/125 = 1,200 6000

14,170 9,830 24,000

Hire Vender In the books of hire Purchase

Particulars Dr. (`) Cr. (`)

1.

At the time of contract of HP is recorded as credit purchase

Machine A/c

Dr.

To Hire vender A/c

14,170

14,170

2.

Down Payment made

Hire vender A/c -

Dr.

To Bank

xx

xx

3.

(a)

(b)

When Instal. Become due, Interest is recognised as expense

Interest A/c

Dr.

To Hire vender A/c

Hire vender A/c

Dr.

3,542

6,000

3,542

6,000

Topper’s Institute Hire-Purchase 6.2

To Bank

4. At end of the year depreciation will be charge

Dep. A/c

Dr.

To Machine

(14170 × 10%)

1,417

1,417

5. W/O Dep. Total Int. accrued during the yr.

P/L A/c

Dr.

To Dep. A/c

To Interest A/c

4,959

1,417

3,542

(a) Int. A/c

Dr.

To Hire Vender

2,928

2,928

(b) Hire Vender A/c

To Bank

6,000

6,000

Dep. A/c

Dr.

To Machine

(14,170 – 1,417) × 10%

1,275

1,275

W/O Dep. & total Int.

P/L A/c

Dr.

To Dep.

To Interest A/c

4,203

1,275

2,928

Machinery A/c

Date Particulars (`) Date Particulars (`)

1st Yr. To Hire Vendor A/c 1,4170 I By Depreciation A/c

By Balance c/d

1,417

12,753

1,4170 14,170

IInd Yr. To Balance b/d 12,753 II By Depreciation A/c

By Balance c/d

1,275

11,478

12,753 12,753

III To Balance b/d

To Profit on Repossed

11,478

470

III By Depreciation A/c

By Hire vendor A/c

1,148

10,800

11,948 11,948

Depreciation will be charge till the date of actual of repossession.

Hire Vendor A/c


1st Yr. To Bank (D.P)

To Bank A/c

To Balance c/d

Nil

6,000

11,712

1st Yr. By Machine A/c

By Interest A/c

14,170

3,542


17,712 17,712

2nd Yr. To Bank A/c

To Balance c/d

6,000

8,640

II By Balance b/d

By Interest A/c

11,712

2,928

14,640 14,640

3rd To Machine A/c (b/f) 10,800 III By Balance b/d

By Interest A/c

8,640

2,160

10,800 10,800

Interest will be charge till the date of actual repossession.

Repossession:

Hire vendor’s A/c – Dr. 10,800

(Baln of his A/c)

To Machine A/c 10,330

(W.D.V on date of repossation)

To Profit on Reposation A/c (470)

Interest Suspense A/c

Date Particulars ` Date Particulars `

I

II

III

To H.V. A/c

To Balance b/d

To Balance b/d

9,830

9,830

6,288

6,288

3,360

3,360

I

II

III

By Interest A/c

By c/d

By Interest A/c

By c/d

By Interest A/c

By H.V. A/c

(B/f)

3,542

6,288

9,830

2,928

3,360

6,288

2,160

1,200

3,360

H.V. A/c


I

II

III

To Bank

To c/d

To Bank

To c/d

To Interest suspense A/c

To Machine A/c

(B/f)

6,000

18,000

24,000

6,000

12,000

1,200

10,800

12,000

I

II

III

By Machine A/c

By Interest suspense A/c

By Balance b/d

By Balance b/d

14,170

9,830

24,000

18,000

18,000

12,000

12,000


Problem 12.

On 1st January, 2001, Ashok acquired furniture on the hire-purchase system from Real Aids Ltd.

agreeing to pay four semi-annual Installments of ` 800 each, commencing on 30th June, 2001. The

Cash price of the furniture was ` 3,010 and interest of 5% per annum at half yearly rest was

chargeable. On 30th September, 2001. Ashok expresses his inability to continue and Real Aids

seized the property. It was agreed that Ashok would pay the due proportion of the installment

upto the date of seizure and also a further sum of ` 200 towards depreciation. At the time of re-

possession, Real Aids valued the furniture at ` 1,500. The Company after incurring ` 200 towards

repairs of the furniture, sold the items for `1,800 on 15th October, 2001.

Required : Prepare the Ledger accounts in the books of the Vendor and the Purchase presuming

that the purchaser charges depreciation @ 10% p.a.


No. of Installment Cash price Interest Installment

DP

I

II

III

IV

3,010

-

3,010

725

2,285

743

1,542

761

781

781

-

3,010 × 5% × 1/12 = 75

57

39

19

-

800

800

800

800

Repo. Stock A/c


30.9

30.9

To Ashok A/c

To Balance b/d

To Bank (Repay)

To P/L A/c

1,714

1,714

1,500

200

100

1,800

30.9

15.10

By P/L A/c

By c/d

By Bank (Sales)

214

1,500

1,714

1,800

1,800

Books of Ashok

Furniture Account


01.01.2001 To Real Aids Ltd. 3,010 30.09.2001 By Depreciation A/c

(10% on ` 3,010 for 9 months) 226

By Real Aids Ltd. 1,714

By Profit & Loss A/c (Loss) 1,070

3,010 3,010


Real Aids Ltd.’s Account


30.06.2001 To Bank A/c 800 01.01.2001 By Furniture A/c 3,010

30.09.2001 To Bank A/c 400 30.06.2001 By Interest A/c 75

M

M

6

3800 30.09.2001 By Interest 29

[(` 2,285.25)@ 5% p.a. for 3m]

To Bank (Repairs) 200

30.09.2001 To Furniture A/c 1,714

3,114 3,114

Interest Account


30.06.2001 To Real Aids 75 By P & L A/c 104

30.09.2001 To Real Aids Ltd. 29

104 104

An Extract of Profit and Loss Account of Ashok

Particulars (`) Particulars (`)

To Interest A/c 104 By Profit on Valuation of Goods 1,400

To Loss on Seizure of goods 1,070

To Depreciation on Furniture 226

1,400 1,400

Books of Real Aid Ltd. Ashok’s A/c


01.01.2001 To Hire 30.06.2001 By Bank A/c 800

Sales A/c 3,010 30.06.2001 By Bank A/c 600

30.06.2001 To Interest A/c 30.09.2001

(on ` 3,010) 75

30.09.2001 To Interest A/c 30.09.2001 By Rep. Stock (Bal. fig.) 1,714

(` 2,285.25) 29

3,114 3,114

An Extract of Profit and Loss Account of Real Aid Ltd.

Particulars (`) Particulars (`)

To Loss on valuation of goods By Interest on H.P. Sales 103.82

repossessed 213.82 By Hire Purchase Goods

Repossessed A/c (Profit) 100.00

Problem 13.

On 1st April, 2012, M/s. Power Motors sold on hire purchase basis a truck whose cash price was

`9,00,000 to M/s. Singh & Singh, a firm of transporters. The terms of the contract were that the


transporters were to pay ` 3,00,000 down and six four-monthly installments of `1,00,000 plus

interest on outstanding amount of cash price for the intervening four months. The installments

were payable on 31st July, 30th November and 31st March in each, one of the two accounting

years. Interest was calculated @ 12% per annum.

M/s. Singh & Singh duly paid the installment on 31st July, 2012 but failed to pay the installment

on 30th November, 2012. M/s. Power Motors, after legal formalities, repossessed the truck valuing

it at `7,00,000.

M/s. Power Motors spent ` 80,000 on repairs and repainting of the truck and on 7th January, 2013

sold it for `7,50,000 cash.

You are required to prepare the account of M/s. Singh & Singh an Goods Repossessed Account in

the books of M/s. Power Motors. [May-2013, 8 Marks]



DP

I

II

III

IV

V

VI

9,00,000

3,00,000

6,00,000

1,00,000

5,00,000

1,00,000

4,00,000

1,00,000

3,00,000

1,00,000

2,00,000

1,00,000

1,00,000

1,00,000

6,00,000 × 12% × 4/12

=24,000

5,00,000 × 12% × 4/12

=20,000

16,000

12,000

8,000

4,000

3,00,000

1,24,000

1,20,000

1,16,000

1,12,000

1,08,000

1,04,000

1,00,000 84,000

Cost 5,20,000

Valuation (NRV) 7,00,000

Valuation for books is 5,20,000(whichever is lower)

In the books of Power Motors Ltd. M/s Singh & Singh A/c

Date Particular (`) Date Particular (`)

1.4.12

31.7.12

30.11.12

To H.P. Sales

To Interest A/c

(6,00,000×12%×4/12)

To Interest A/c

(5,00,000×12%×4/12)

9,00,000

24,000

20,000

1.4.12

31.7.12

Dec 12

By Bank A/c

By Bank A/c

By Rep. Goods A/c (b/f)

3,00,000

1,24,000

5,20,000

9,44,000 9,44,000


Repossessed Goods A/c

Date Particular (`) Date Particular (`)

30.11.12

7.1.13

7.1.13

To Singh & Singh A/c

To Bank A/c (Repairs)

To P/L A/c

5,20,000

80,000

1,50,000

7.1.13

By Bank A/c

7,50,000

7,50,000 7,50,000

Problem 14.

Repaid Engineering Works sold to Ratan Ltd. a machine of the cash value of ` 31,360 on hire

purchase basis on 1st April, 2001. A sum of ` 9,000 was paid at the time of delivery. The balance

was payable in three equal annual installments of ` 9,000 each payable on 31st March of every

year. Interest was charged @ 10% per annum. The purchaser charged 10% depreciation per

annum on the diminishing balances of the machine.

Hire – Purchase failed to pay the installment due on 31st March, 2003. Repaid engineering works

obtained the permission of the court to repossess the machine as a result of default the purchaser

and having completed all the statutory requirements took possession of the machine on 31 st may,

2003. Prepare the necessary ledger accounts in the books of hire-purchase.



DP

I

II

III

31,360

9,000

22,360

6,764

15,596

7,440

8,156

Nil

22,360 × 10% × 1=2,236

15,596 × 10% × 1=1,560

9,000 – 8,156 = 844

9,000

9,000

9,000

9,000


Machinery A/c


01.4.2001 To Rapid 31.3.2002 By Depreciation A/c

Engineering (@ 10% on Rs. 31,360) 3,136

Work (Total cash price) 31,360 By Balance c/d 28,224

31,360 31,360

01.4.2002 To Balance b/d 28,224 31.3.2003 By Depreciation

(@ 10% on `28,224) 2,822

31.3.2003 By Bal. c/d 25,402

28,224 28,224

1.4.203 To Balance b/d 25,402 31.5.2003 By Depreciation A/c 423

(25402×10%×2/12)

By Repairs & Engineering 1,7442

By P&L A/c 7,537

25,402 25,402

Rapid Engineering Ltd. A/c


01.04.2001 To Bank 01.04.2001 By Machinery A/c 31,360

(down payment) 9,000 31.03.2002 By Interest A/c

31.03.2002 To Bank A/c (` 22,360 10/100) 2,236

(1st Instalment) 9,000

31.03.2002 To Balance c/d 15,596 ______

33,596 33,596

31.03.2002 To Machinery A/c 01.04.2002 By Balance b/d 15,596

(Transfer of balance) 17,156 31.3.02 By Interest A/c

(`15,596 10%) 1,560

17,156 17,156

31.5.2003 To Machinery A/c (b/f) 17,442

1.4.2003 By Balance b/d 17,156

31.05.2003 By Intt A/c 286

(17156×10%×2/12)

17,442 17,442

Problem 15.

X Transport Ltd. Purchased from Delhi Motors 3 tempos costing ` 50,000 each on the Hire-

purchase system on 1.1.1987 payment was to be made ` 30,000 down and the remainder in 3

equal annual installments payable on 31.12.87, 31.12.88 and 31.12.89 together with interest @ 9%

X Transport Ltd. Write off depreciation at the rate of 20% on the diminishing balance.

It paid the installment due at the end of the first year i.e., 31.12.1987 but could not pay the next on

31.12.1988. Delhi Motors agreed to leave one tempo with the purchaser on 1.1.1989 adjusting the

value of the other 2 tempos against the amount due on 1.1.1989. The tempos were valued on the

basis of 30% depreciation annually. Show the necessary A/c for the year 87, 88, 89.


Solution In the books of X Transport Ltd.

Tempos Account


1.1.87 To Delhi Motors A/c 1,50,000 31.12.87 By Depreciation A/c 30,000

31.12.87 By Balance c/d 1,20,000

1,50,000 1,50,000

1.1.88 To Balance b/d 1,20,000 31.12.88 By Depreciation A/c 24,000

31.12.88 By Balance c/d 96,000

1,20,000 1,20,000

1.1.89 To balance b/d 96,000

1.1.89 By Delhi Motors 49,000

1.1.89 By Loss on repossession 15,000

31.12 By Depreciation 6,400

(32,000×20%)

31.12.89 By Balance c/d 25,600

96,000 96,000

Analysis Table

No. Balance Interest Amount

DP

I

II

III

1,50,000

30,000

1,20,000

40,000

80,000

40,000

40,000

40,000

NIL

-

1,20,000 × 9/100 = 10,800

80,000 × 9/100 = 7,200

40,000 × 9/100 = 3,600

30,000

50,800

47,200

43,600


Delhi Motors Ltd. A/c


1.1.87

31.12.87

31.12.87

31.12.88

1.1.89

31.12.89

To Bank A/c [Down Payment]

To Bank A/c

To Balance c/d

To Balance c/d

To Tempo A/c

To Bank A/c

(38,200+3,438)

30,000

50,800

80,000

1.1.87

31.12.87

1.1.88

1.1.89

By Tempo A/c (5,000×3)

By Interest (9% on 1,20,000)

By Balance b/d

By Interest A/c

By Balance b/d

By Interest A/c (38,200 ×9%)

1,50,000

10,800

1,60,800 1,60,800

87,200

80,000

7,200

87,200 87,200

49,000

41,638

87,200

3,438

90,638 90,638

Working Notes

(1) Book Value of two Tempos Repossessed (`)

Cost of two Tempos (` 50,000 × 2) 1,00,000

Less : Depreciation of 1987 @ 20% 20,000

80,000


64,000

(2) Loss on Repossession of two Tempos

(`)

Cost of two Tempos 1,00,000

Less : Depreciation for 1987 @ 30% 30,000

70,000


Agreed value of repossessed tempos 49,000

Book value 64,000

Less : Agreed value (as above) 49,000

Loss on repossession 15,000

DM Ltd. A/c………………….Dr. 49,000

Loss on Repossession A/c….DR 15,000

To Tempos A/c 64,000

Assuming balance is paid at end of year 89.

W/N-

Amount due 87200

Less: Agreed value of Tempos 49,000

38,200

Interest 3,438

Amount of Installment of end of year 41,638


Problem 16.

A firm acquired two tractors under hire purchase agreements, details of which were as following:

Date of Purchase Tractor A Tractor B

1st April’01 1st Oct.’01

Cash Price 14,000 19,000

Deposit (Down Payment) 2,000 2,680

Interest (deemed to accrue evenly

over the period of agreement) 2,400 2,880

Both agreements provided for payment to be made in twenty-four monthly installments,

commencing on the last day of the month following purchase, all installments being paid on due

dates.

On 30th June 2002 Tractor B was completely destroyed by fire. In full settlement, on 10 th July, 2002

an insurance company paid ` 15,000 under a comprehensive policy out of which `10,000 was paid

to the hire purchase company in termination of the agreement. Any balance on the hire purchase

company’s account in respect of these transactions was to be written off.

The firm prepared accounts annually to 31st Dec. and provided depreciation on tractors on a

straight-line basis at a rate of 20 per cent per annum rounded off to nearest ten rupees,

apportioned as from the date of purchase to the date of disposal.

You are required to record these transactions in the following accounts, carrying down the balance on 31st Dec., 2001 and 31st Dec., 2002:

(i) Tractors on the hire Purchase

(ii) Provision for depreciation of tractor

(iii) Disposal of tractor

(iv) Hire Purchase Company.

Solution Calculation of Installment

Particulars Tractor (A) Tractor (B)

Cash price

Less:- Deposit Balance

No. of Installment

Cash price per installment

+ Interest (evenly)

2,400 ÷ 24

2,880 ÷ 24

14,000

2,000

12,000

24

500

100

19,000

2,680

16,320

24

680

120

Amount of Installment including Interest 600 800


Tractors on Hire Purchase A/c


1.4.9

1.10

3.1

To H.P. Company A/c

To H.P. Company A/c

To Balance b/d

14,000

19,000

33,000

33,000

31.12

30.6.1

2

30.12

By Balance c/d

By Disposal of Tractor A/c

By Balance c/d

33,000

33,000

19,000

14,000

33,000 33,000

Provision for Depreciation A/c


31.12 To Balance c/d

To Assets Disposal A/c

( 950 +1,900)

To Balance c/d

3,050

____

3050

2,850

4,900

31.12

31.12

By Depreciation

(14,000×20%×9/12)

(19,000×20%×3/12)

By Balance b/d

By Depreciation

(19,000×20%×6/12)

(14,000×20%×1)

2,100

950

____

3050

3,050

1,900

2,800

7,750 7,750

Disposal of Tractor A/c


To Tractor A/c

To Bank A/c

19,000

Nil

31.12

By Bank A/c

By pro for Dep.

(950 + 1,900)

By P/L A/c

(Balancing figure)

15,000

2,850

1,150

19,000 19,000

Hire Purchase Company A/c [H.V.]


1.4

30.4

31.5

30.6

31.7

31.8

30.9

1.10

31.10

to 31.12

To Bank A/c

To Bank A/c

To Bank A/c

To Bank A/c

To Bank A/c

To Bank A/c

To Bank A/c

To Bank A/c

To Bank A/c (600 +

800)×3

2,000

600

600

600

600

600

600

2,680

4,200

1.4

30.4

31.5

30.6

31.7

31.8

30.9

1.10

31.10

30.1

By Tractor A/c

By Interest A/c

By Interest A/c

By Interest A/c

By Interest A/c

By Interest A/c

By Interest A/c

By Tractor A/c

By Interest A/c (100 + 120)

By Interest A/c

14,000

100

100

100

100

100

100

19,000

220

220


31.12

31.1

28.2

31.3

30.4

31.5

30.6

10.7

31.7

31.7

31.9

31.10

30.11

31.12

3.12

31.1

28.2

31.3

To Balance c/d

To Bank

To Bank

To Bank

To Bank

To Bank

To Bank

To Bank (final settlement)

To P/L A/c

To Bank A/c

To Bank A/c

To Bank A/c

To Bank A/c

To Bank A/c

To Bank A/c

To Balance c/d A/c

To Bank A/c

To Bank A/c

To Bank A/c

21,780

______

34,260

1,400

1,400

1,400

1,400

1,400

1,400

10,000

200

600

600

600

600

600

600

1,500

______

23,700

600

600

600

1.1

31.1 to

30.6

31.7

1.3

31.3

By Interest A/c

By Balance b/d

By Interest A/c (220 × 6)

By Interest A/c (100 × 6)

By Balance b/d

By Interest (100 × 3)

220

______

34,260

21,780

1,320

600

______

23,700

1,500

300

1,800 1,800

Working Notes:-

Cash price of Tractor B 19,000

Less:- Down payment (2,680)

Less:- Cash price paid through Installment (9 month × 680) 6,120

10,200

Final payment 10,000

Discount 200

Problem 17.

X purchased seven trucks on hire purchase on 1.7.68. The cash price of each truck was ` 50,000.

He was to pay 20% of the cash price at the time of delivery and the balance in five half yearly

installments starting from 31-12-68 with interest @ 5% per annum.

On X’s failure to pay the installment due on 30.6.69 it was agreed that X would return 3 trucks to

the vendor and the remaining 4 would be retained by him. The vendor agreed to allow him a

credit for the amount paid against these 3 trucks less 25%.


Show the relevant account in the books of X assuming that his books are closed in June every year

and depreciation @ 20% is charged on trucks.


No. Balance Interest Installment

Cash Price

DP

3,50,000

70,000

- 70,000

1 2,80,000

56,000

2,80,000 × 5% ×6/12 = 7,000

63,000

2 2,24,000

56,000

2,24,000 × 5% ×6/12 = 5,600 61,600

3 1,68,000

56,000

1,68,000 × 5% ×6/12 = 4,200 60,200

4 1,12,000

56,000

1,12,000 × 5% ×6/12 = 2,800 58,800

5 56,000

56,000

56,000 × 5% ×6/12 = 1,400 57,400

21,000 3,71,000

Hire Vendor Account Dr.

Cr. Date Particular (`) Date Particular (`)

1969 1969

July 1 To Cash 70,000 July 1 By Trucks 3,50,000

Dec. 31 To Cash (5,600 + 7,000) 63,000 Dec. 31 By Interest (5% on

` 2,80,000 for 6 months) 7,000

1969 1969

June 30 To Trucks 40,500 June 30 By Interest

To Balance c/d 1,89,100 (on ` 2,24,000) 5,600

3,62,600 3,62,600

1969

July 1 By Balance b/d 1,89,100

Dr. Trucks Account Cr.

1969 Particular (`) 1969 Particular (`)

July 1 To Hire vendor 3,50,000 June 30 By Deprecation 70,000

(350000×20%)

By H.V. 40 ,500

By Profit and loss a/c 79,500

By Balance c/d (4 trucks) 1,60,000*

3,50,000 3,50,000

Working Note:

Valuation of 3 trucks to be Repossessed

Amount paid for 3 truck

D.P = truck37

000,70 = 30,000


Ist Inst. = truck37

000,56 = 24,000

54,000

Less: 25% dis. 13,500

Agreed value for Repo. 40,500

Book Value 37

000,80,2 = 1,20,000

Loss on Repo. 79,500

Problem 18.

On 1st January, 1990 Anurag sells a truck to Alok, on the hire-purchase system based on Interest Suspense A/c on the following condition:

(i) The purchase price of the truck is ` 1,00,000.

(ii) This amount is payable to Anurag in three equal annual installments along with 12%

interest

per annum turn, down payment is ` 25,000.

(iii) Alok hires out the truck to Anurag for a monthly hire of ` 3,000 p.m. from 1st January 1990.

(iv) The hire charges are to be adjusted at the end of each year, against the amount due to

Anurag on account of principal and interest any difference being settled in cash. Alok

charges 10% depreciation (on the written – down-value method) on the truck.

(v) All payments are made as per the agreements. On 1st January 1993, the truck is sold by Alok

to Anurag for ` 20,000 prepare the interest Account and Anurag’s Account.

Solution

Books of Alok Dr. Truck Account Cr.


1.1.90 To Anurag A/c 1,00,000 31.12.90 By Depreciation A/c 10,000

By Balance c/d 90,000

1,00,000 1,00,000

1.1.91 To Balance b/d 90,000 31.12.91 By Depreciation A/c 9,000


90,000 90,000

1.1.91 To Balance b/d 81,000 31.12.92 By Depreciation A/c 8,100


81,000 81,000

1.1.93 To Balance b/d 72,900 1.1.93 By Cash A/c 20,000

By Loss on sale of Truck 52,900

72,900 72,900


Dr. Interest Suspense Account Cr.


1.1.90 To Anurag 18,000 31.12.90 By Interest A/c 9,000


18,000 18,000

1.1.91 To Balance b/d 9,000 31.12.91 By Interest A/c 6,000


9,000 9,000

1.1.91 To Balance b/d 3,000 31.12.92 By Interest A/c 3,000

3,000 3,000

Dr. Hire Charges Account

Cr.


31.12.90 To P & L A/c 36,000 31.12.90 By Anurag 36,000

36,000 36,000

31.12.91 To P & L A/c 36,000 31.12.91 By Anurag 36,000

36,000 36,000

31.12.91 To P & L A/c 36,000 31.12.92 By Anurag 36,000

36,000 36,000

Dr. Interest Account Cr.


31.12.90 To Interest Suspense A/c 9,000 31.12.90 By P & L A/c 9,000

9,000 9,000


6,000 6,000


3,000 3,000

Dr. Anurag’s Account Cr.


1.1.90 To Bank A/c 25,000 31.12.90 By Trukc A/c 1,00,000

31.12.90 To Hire Charges A/c 36,000 By Interest Suspense A/c 18,000

To Balance c/d 59,000 By Bank A/c 2,000

1,20,000 1,20,000

31.12.91 To Hire Charges A/c 36,000 1.1.91 By Balance b/d 59,000

To Balance c/d 28,000 31.12.91 By Bank A/c 5,000

64,000 64,000

31.12.92 To Hire Charges A/c 36,000 1.1.92 By Balance b/d 28,000

31.12.92 By Bank A/c 8,000

36,000 36,000

Problem 19.

ABC associates entered into a financial agreement on 1.4.2001 with Flexible leasing Ltd. For lease

of car. The price of the car was ` 2,00,000 and the quarterly lease rentals were agreed to ` 90 per

thousand payable at the beginning of every quarter. ABC associates kept up their payments but by

25.3.2002 they approached and obtained the consent of the leasing company for treating


arrangement as one of Hire-Purchase from the beginning on the following terms:

Period 3 years

Quarterly then : ` 30,000 payable at the beginning of the quarter.

It was agree that the lease rentals paid will be treated as hire monies and that the balance due up

to 31.3.2002 will be settled by ABC Associates on that date with interest at 18% p.a. on various

installment due during the year. The rate of depreciation on the car is 25%.

Required: Showing the following A/c in the books of ABC associates for the year 2001-02:

Flexible Leasing Ltd’s A/c and. Interest Suspense A/c. [Nov – 1996]

Solution Lease rental = 000,1

90000,00,2

= 18,000/quarterly

1.4 = 18,000

1.7 = 18,000

1.10 = 18,000

1.1 = 18,000

25.3 =

1.4 =

Lease Rent A/c…………………….Dr. 18,000

To Bank A/c 18,000

Car A/c……………………………..Dr. 2,00,000

Interest Suspense A/c……………..Dr. 1,60,000

To H.V. A/c 3,60,000

Car A/c


25.3 To F.L. Ltd. A/c 2,00,000 31.3 By Dep.

(2,00,000 × 25%)

By c/d

50,000

1,50,000

2,00,000 2,00,000

Flexible Leasing Limited Account


25.3.2002 To Lease Rental A/c 72,000 25.3.2002 By Car on hire Purchase A/c 2,00,000

31.3.2002 To Bank A/c (48,000 + 5,400) 53,400 25.3.2002 By Interest Suspense A/c 1,60,000

31.3.2002 To Balance c/d 2,40,000 31.3.2002 By Additional Interest A/c 5,400

3,65,400 3,65,400


Dr. Interest Suspense Account Cr.


25.3.2002 To Flexible Leasing Ltd. 1,60,000 31.3.2002 By Interest on H.P. A/c 92,121

31.3.2002 By Balance c/d 67,879

1,60,000 1,60,000

Working Notes

(i) Calculation of Balance Payable on 31st March, 2002 and the Amount of Interest

Date Quarterly Hire Charges

Rs.

Quarterly Lease

Rentals Paid (`)

Difference Payable (`)

Interest @ 18% p.a. Amount to Interest (`) From To

01.04.2001

01.07.2001

01.10.2001

01.01.2002

30,000

30,000

30,000

30,000

18,000

18,000

18,000

18,000

72,000

12,000

12,000

12,000

12,000

48,000

01.04.2001

01.07.2001

01.10.2001

01.01.2002

31.03.2002

31.03.2002

31.03.2002

31.03.2002

2,160

1,620

1,080

540

5,400

Amount Payable on 31st March, 2002 (`)

Balance due 48,000

Interest due 5,400

53,400

(ii) Ascertainment of Total Amount of Interest on Hire Purchase (`)

Hire Purchase Price of the car 3,60,000

(` 30,000 12 installments

Less: Cash Price (2,00,000)

Total: Amount of Interest 1,60,000

(vi) Calculation of Interest on Hire Purchase Attributable to the year 2001 – 2002

Date Interest Calculation (`)

1.4.2001 26,667

1.7.2001 24,242

1.10.2001 21,818

1.1.2002 19,394

92,121

Problem 20.

A manufacturing company purchased machinery on hire-purchase basis on 1st June, 1990. Soon

after the installation the machine was giving trouble and finally broke on 14 th August, 1990. The

1,60,000 11

66

1,60,000 10

66

1,60,000 9

66

1,60,000 8

66


suppliers agreed to replace the machine. A new agreement was signed for that purpose and a sum

of ` 500 was paid for cancelling the first agreement by the manufacturing company. The following

are the necessary particulars:

1st Machine 2nd Machine

1. Date of Purchase 1.6.1990 31.8.1990

2. Cash Price 35,000 42,860

3. Initial Payment 6,920 ––

4. Allowance for payments made under cancelled agreement –– 9,500

5. Hire charges 3,240 3,840

6. Hire-Purchase Price 38,240 46,700

7. Number of installments 18 24

8. Installment payable every month commencing on 1.7.1990 1.10.1990

9. All payment were made on due dates

9. Ignore depreciation on machinery

You have to prepare the following Ledger Accounts in the books of the manufacturing company for the year ending 31st March, 1991:

(a) Machinery on H.P. A/c,

(b) Hire-Purchase Company’s A/c,

(c) Hire-Purchase Disposal A/c, and

(d) Hire-Purchase Interest Suspense A/c

Solution

Dr. Machinery Account

Cr.


1.6.90 To Hire-Purchase 14.8.90 By H.P. (Machine) 35,000

Company's A/c 35,000 Disposal A/c

31.8.90 To Hire-Purchase By Dep. -

Company's A/c 42,860 31.3.91 By Balance c/d 42,860

77,860 77,860

Statement of Installment

Particulars 1st Machine 2nd Machine

Cash price

Less: D.P.

Less: Allowance for 1st machine

Balance

+ Hire-charges (Interest)

No. of Installment

Amount of installment

35,000

6,920

42,860

9,500

28,080

3,240

33,360

3,840

31,320

÷ 18

37,200

24

1,740 1,550


Interest Suspense Account


1.6

31.8

To H.P.C.

To H.P.C.

3,240

3,840

1.7.90

1.8.90

14.8

1.10

1.11

1.12

1.1

1.2

1.3

By Interest A/c (3,240 × 18/171)

By Interest A/c (3,240 × 17/171)

By Interest A/c (3,240 × 16/171 ×

14/31)

By H.P. C. (unexpired)

By Interest (3,840 × 24/300)

By Interest (3,840 × 23/300)

By Interest (3,840 × 22/300)

By Interest (3,840 × 21/300)

By Interest (3,840 × 20/300)

By Interest (3,840 × 19/300)

By Interest (3,840 × 18/300)

(Accrue but not due)

By c/d

341

322

137

2,440

307

294

282

269

256

243

230

1,959

7,080 7,080

Dr. Hire-Purchase Company Account

Cr.


1.6.90 To Bank 6,920 1.6.90 By Machinery on Hire-

1.7.90 To Bank 1,740 Purchase A/c 35,000

1.8.90 To Bank 1,740 By H.P. Interest

14.8.90 To H.P. Interest 2,440 Suspense A/c 3,240

Machinery

Suspense Account

(amount written back)

To H.P. (Machine) 25,400

Disposal A/c (B.f.)

38,240 38,240

31.8.90 To Allowance 9,500 31.8.90 By Machinery on H.P. A/c 42,860

31.3.91 By H.P. Interest

1.10.90 To Bank 1,550 Suspense A/c 3,840

1.10.90 To Bank 1,550

1.10.90 To Bank 1,550

1.1.91 To Bank 1,550

1.2.91 To Bank 1,550

1.3.91 To Bank 1,550

31.3.91 To Balance c/d 27,900

46,700 46,700


Dr. H.P. Disposal Account

Cr.


14.8.90 To Machinery on hire- 14.8.90 By Hire-Purchase Co. A/c 25,400

purchase A/c 35,000 31.8.90 By Hire-Purchase Co. A/c

To Bank (cancellation (allowance) 9,500

charges) 500 By Profit & Loss A/c 600

35,500 35,500

Problem 21.

Happy Valley florists Ltd. acquired a delivery van on hire purchase on 01.04.2010 from Ganesh

Enterprises. The terms were as follows:

Particulars Amount (` )

Hire Purchase Price 1,80,000

Down Payment 30,000

1st installment payable after 1 year 50,000

2nd installment after 2 years 50,000

3rd installment after 3 years 30,000

4th installment after 4 years 20,000

Cash price of van ` 150,000 and depreciation is charged at 10% WDV.

You are required to

(i) Calculate Total Interest and Interest included in each installment.

(ii) Prepare Van-A/c, Ganesh Enterprises A/c in the books of Happy Valley Florists

Ltd. up to 31.03.2014.

[May-2014, 8 Marks]

Solution Van A/c

Date Particulars Amount Date Particulars Amount

1.4.10 To Ganesh enterprises 1,50,000 31.3.11

31.3.11

By Depreciation A/c

By Balance c/d

15,000

1,35,000

1,50,000 1,50,000

1.4.11 To balance c/d 1,35,000 31.3.12

31.3.12

By Depreciation

By balance c/d

13,500

1,21,500

1,35,000 1,35,000

1.4.12 To balance c/d 1,21,500 31.3.13

31.3.13

By Depreciation

By balance c/d

12,150

1,09,350

1,21,500 1,21,500

1.4.14 To balance c/d 1,09,350 31.314 By Depreciation

By balance c/d

10,935

98,415

1,09,350 1,09,350


Computation of interest :-

Hire purchase price 1,80,000

Cash price 1,50,000

Interest 30,000

Division of interest included in each installments:-

No .of years Hire purchase price at the beginning of Ratio Interest = Total interest × ratio

1

2

3

4

H.P. Price 1,80,000

(-) Down payment 30,000

Hire purchase o/s at the beginning of 1st yr

150000

1,00,000

5,00,000

20,000

15

10

5

2

30,000×15/32 = 14062.5

30,000×10/32 = 9375

30,000×5/32 = 4687.5

30,000×2/32 = 1875

32 30,000

Ganesh Enterprises A/c

Date Particulars Amount Date Particulars Amount

1.4.10

31.3.11

To bank A/c

To bank A/c

To balance c/d

30,000

50,000

84,062.5

1.4.10

31.3.11

By Assets A/c

By interest

1,50,000

1,4062.5

1,64,062.5 1,64,062.5

1.4.11

31.3.12

To bank

To balance c/d

50,000

4,3437.5

1.4.11

31.3.12

By balance b/d

By interest

84,062.5

9,375

93,437.5 93,437.5

31.3.13 To bank A/c

To balance c/d

30,000

18,125

1.4.12 By balance b/d

By interest

43,437.5

4,687.5

48,125 4,8125

31.3.14 To bank A/c 20,000 1.4.14 By balance c/d

By interest

18,125

1,875

20,000 20,000

Problem 22.

Lucky bought 2 tractors from Happy on 1.10.11 on the following terms:

`

Down payment 5,00,000

1st installment at the end of first year 2,65,000

2nd installment at the of 2nd year 2,45,000

3rd installment at the end of 3rd year 2,75,000

Interest is charged at 10% per annum Lucky provides depreciation @ 20% on diminishing balances.

On 30.09.14 lucky failed to pay the 3 rd installment upon which Happy repossessed 1 tractor.

Happy agreed to leave 1 tractor with lucky and adjusted the value of the tractor against the

amount due. The tractor taken over was valued on the basis of 30% depreciation annually on

written down basis. The balance amount remaining in the vendor’s account after the above


adjustment was paid by Lucky after 3 months with interest @ 18% p.a.

You are required to:

(1) Calculate the cash price of the tractors and the interest paid with each installment.

(2) Prepare Tractor Account and Happy Account in the books of Lucky assuming that books

are closed on September 30 every year. Figure may be rounded off to the nearest rupee.

[May-2015, 8 Marks]

Solution 1. Statement of Cash Price of the Assets acquired on HP

End of Installment

Balance due after

Installment

Installment Amount

Cumulative Amount

Interest at 10% p.a

Paid for principal

(1) (2) (3) (4)= (2) + (5) (5)=

110

10)4(

(6)= (3)-(5)

3

2

1

0

Nil

2,50,000

4,50,000

6,50,000

2,75,000

2,45,000

2,65,000

5,00,000

2,75,000

4,95,000

7,15,000

11,50,000

25,000

45,000

65,000

Nil

2,50,000

2,00,000

2,00,000


12,85,000 1,35,000 11,50,000

Thus, Cash price of the Assets = ` 11,50,000

2. Tractor A/c


01.10.11

01.10.11

To bank A/c (Down

payment)

To Happy A/c

5,00,000

6,50,000

30.09.12

30.09.12

By depreciation (11,50,000 x 20%)

By balance c/d

2,30,000

9,20,000

Total 11,50,000 Total 11,50,000

01.10.12 To balance b/d 9,20,000 30.09.13

30.09.13

By Depreciation (9,20,000 x 20%)

By balance c/d

1,84,000

7,36,000

Total 9,20,000 Total 9,20,000

01.10.13 To balance b/d 7,36,000 30.09.14

30.09.14

30,09,14

By Depreciation (7,36,000 x 20%)

By Happy

%70%70%70

2

000,50,11

By Loss on takeover (Bal. figure) or

[(1/2 of 5,88,800)2,94,400-1,97,225]

By balance c/d

1,47,200

1,97,225

97,175

2,94,400

Total 5,88,800 Total 5,88,800

01.10.14 To balance b/d 2,94,400 30.09.15 By Depreciation (2,94,400 × 20%)

By balance c/d

58,880

2,35,520

Total 2,94,400 Total 2,94,400

Note: Computation of Takeover Value of Tractor


Particulars `

Cost of the Tractor (1 Tractor) 11,50,000/2

Depreciation for Year 1 5,75,000 × 30%

Depreciation for Year 2 (5,75,000 – 1,72,500)= 4,02,500 × 30%

Depreciation for Year 3 (4,02,500 – 1,20,750)= 2,81,750 × 30%

5,75,000

(1,72,500)

(1,20,750)

(84,525)

Takeover Value of Tractor 1,97,525

3. Happy A/c


30.09.12

30.09.12

To Bank A/c

To Balance c/d (bal. fig.)

2,65,000

4,50,000

01.10.11

01.10.11

By Tractor A/c

By interest (6,50,000 × 10%)

6,50,000

65,000

Total 7,15,000 Total 7,15,000

30.09.13

30.09.13

To Bank

To Balance c/d

2,45,000

2,50,000

01.10.12

01.10.12

By Balance b/d

By Interest

4,50,000

45,000

Total 4,95,000 Total 4,95,000

30.09.14

30.09.14

To Tractor A/c (takeover)

To Balance c/d

1,97,225

77,775

01.10.13

01.10.13

By Balance b/d

By Interest

2,50,000

25,000

Total 2,75,000 Total 2,75,000

31.12.14 To Bank A/c 81,275 01.10.14

31.12.14

By Balance b/d

By Interest (77,775 × 18% × 3/12)

77,775

3,500

Total 81,275 Total 81,275

Problem 23.

Girish Transport Ltd. purchased from NCR Motors 3 electric rickshaws costing ` 60,000 each on

the hire purchase system on 1.1.2013. Payment was to be made ` 30,000 down and the remainder

in 3 equal installments payable on 31.12.2013, 31.12.2014 and 31.12.2015 together with interest @

10% p.a. Girish Transport Ltd. writes off depreciation @ 20% p.a. on the reducing balance. It paid

the installment due at the end of 1st year i.e. 31.12.2013 but could not pay next on 31.12.2014. NCR

Motors agreed to leave one e-rickshaw with the purchaser on 31.12.2014 adjusting the value of the

other two e-rickshaws against the amount due on 31.12.2014. The e-rickshaws were valued on the

basis of 30% depreciation annually on WDV basis.

Show the necessary Ledger accounts in the, books of Girish Transport Ltd. for the year 2013, 2014

and 2015.

Solution

1. Rickshaw A/c


01.01.13 To NCR Motors

A/c

1,80,000 31.12.13 By Depreciation (1,80,000 × 20%) 36,000

31.12.13 By balance c/d 1,44,000

Total 1,80,000 Total 1,80,000

01.01.14 To balance b/d 1,44,000 31.12.14 By Depreciation (1,44,000 × 20%) 28,800

By NCR Motors (WN 2) 58,800

By Loss on Takeover (WN 3) 18,000 By balance c/d

(b/f)

38,400

Total 1,44,000 Total 1,44,000

01.01.15 To balance b/d 38,400 31.12.15 By Depreciation (38,400 × 20%) 7,680


By balance c/d

(b/f)

30,720 Total 38,400 Total 38,400

NCR Motors A/c


01.01.13 To Bank A/c 30,000 01.01.13 By Rickshaw A/c 1,80,000

31.12.13 To Bank A/c [50,000 +

15,000]

65,000 31.12.13 By Interest A/c [1,80,000 - 30,000 × 10% 15,000

31.12.13 To balance c/d (b/f) 1,00,000 Total 1,95,000 Total 1,95,000

31.12.14 To Rickshaw A/c 58,800 01.01.14 By balance b/d 1,00,000

31.12.14 To balance c/d 51,200 31.12.14 By Interest A/c (1,00,000 × 10%] 10,000 1,10,000 1,10,000

31.12.15 To Bank A/c (Note) 56,320 01.01.15 By balance b/d 51,200

31.12.15 By Interest A/c [51,200 × 10%] 5,120 Total 56,320 . Total 56,320

Note: It is assumed that the balance amount is settled along with interest, on 31.12.2015.

Working Notes: 1. Valuation of Rickshaw

Particulars Value as per purchaser

Purchaser

Value as per Vendor

Depreciation Rate 20% WDV 30% WDV

Value of Rickshaw [60,000 x 3] 1,80,000 1,80,000

Less, Depreciation for the year 2013 (36,000) (54,000)

Value of Rickshaw as on 31.12.2013 1,44,000 1,26,000

Less: Depreciation for the year 2014 (28,800) (37,800)

Value of Rickshaw as on 31.12.2014 1,15,200 88,200 Less, Value of Rickshaws repossessed [1,15,200 ×

2/3]

(76,800)

Price of the Remaining Rickshaw [1,15,200

×1/3]

38,400

Less: Depreciation for the year 2015 (7,680)

Value of Rickshaw as on 31.12.2015 30,720

Takeover Value of Rickshaws repossessed: 2/3 × ` 88,200 = ` 58,800

Loss on Takeover = Book Value of Rickshaws Repossessed f 76,800 (-) Takeover Value ` 58,800 = `

18,000.

Problem 24.

What are the differences between Hire Purchase and Installment System?

[Nov-2014, 4 Marks]

Solution

The differences between hire purchase and installment system are as follows:

Basis of Distinction Hire Purchase Agreement Installment system

1. Act governing It is governed by Hire Purchase

Act 1972

It is governed by sale of Goods Act

1930

2. Nature of contract It is an agreement of hiring It is an agreement of sale

3. Passing of title

(ownership)

The title of goods passes on last

payment

The title of goods passes

immediately as in the case of usual

sale


4. Right to return

goods

The hirer may return goods

without further payment, except

for accrued installment.

Unless seller defaults, goods are

not returned.

Problem 25.

Srikumar bought 2 cars from 'Fair Value Motors Pvt. Ltd. on 1-4-2012 on the following terms:


1st Installment at the end of first year 4,20,000

2nd Installment at the end of 2nd year 4,90,000

3rd Installment at the end of 3rd year 5,50,000

Interest is charged at 10% p.a.

Srikumar provides depreciation @ 25% on the diminishing balances.

On 31-3-15 Srikumar failed to pay the 3rd installment upon which 'Fair Value Motors Pvt Ltd.

repossessed 1 car. Srikumar agreed to leave one car with Fair Value Motors Pvt Ltd. and adjusted

the value of the car against the amount due. The car taken over was valued on the basis of 40%

depreciation annually on written down basis. The balance amount remaining in the vendor's

account after the above adjustment was paid by Srikumar after 3 months with interest @ 20% p.a.

You are required to :

(i) Calculate the cash of the cars and the interest paid with each installment.

(ii) Prepare Car Account and Fair Value Motors Pvt Ltd. Account in the books of Srikumar

assuming books are closed on March 31, every year. Figures may be rounded off to the

nearest rupee.

[Nov-2016, 8 Marks]

Solution

(i) Calculation of Interest and Cash Price

No. of

Installments

Outstanding

Balance at the

end after the

payment of

installment

Amount due of

the time of

installment

Outstanding

balance at the

end before the

payment of

installment

Interest Outstanding

balance at the

beginning

[1] [2] [3] [4] = 2 + 3 [5] =

4×10/110

[6] = 4-5

3rd

2nd

1st

-

5,00,000

9,00,000

5,50,000

4,90,000

4,20,000

5,50,000

9,90,000

13,20,000

50,000

90,000

1,20,000

5,00,000

9,00,000

12,00,000

Total cash price = Rs.12,00,000 + 6,00,000 (down payment) = ` 18,00,000.


(ii) In the books of Srikumar Cars Account


1.4.2012 To fair Value Motors a/c 18,00,000 31.3.2013 By Depreciation A/c

By Balance c/d

4,50,000

13,50,000

18,00,000 18,00,000

1.4.2013 To Balance b/d 13,50,000 31.3.2014 By Depreciation A/c

By Balance c/d

3,37,500

10,12,500

13,50,000 13,50,000

1.4.2014 To Balance b/d 10,12,500 31.3.2015 By Depreciation A/c

By Fair Value Motors a/c

(Value of 1 Car taken over

after depreciation for 3 years

@40% p.a.)

[9,00,000 – (3,60,000 +

2,16,000 + 1,29,600)]

By Loss transferred to Profit

and Loss a/c on surrender

(Bal. fig.)

By Balance c/d

½ (10,12,500 – 2,53,125)

2,53,125

1,94,400

1,85,288*

3,79,687*

10,12,500 10,12,500

*May be rounded off as ` 1,85,287. In that case, the balance in Cars account will be ` 3,79,688.

Fair value Motors Pvt. Ltd.


1.4.12

31.3.13

To Bank (down payment)

To Bank (1st Installment)

To Balance c/d

6,00,000

4,20,000

9,00,000

1.4.12

31.3.13

By Cars a/c

By Interest a/c

18,00,000

1,20,000

19,20,000 19,20,000

31.3.14 To Bank (2nd Installment)

To Balance c/d

4,90,000

5,00,000

1.4.13

31.3.14

By Balance b/d

By Interest A/c

9,00,000

90,000

9,90,000 9,90,000

31.3.15 To Car A/c

To Balance c/d

1,94,400

3,55,600

1.4.14

31.3.15

By Balance b/d

By Interest A/c

5,00,000

50,000

5,50,000 5,50,000

30.6.15 To Bank (Amount settled after 3

months)

3,73,380 1.4.15

30.6.15

By Balance b/d

By Interest A/c @ 20% on

bal.)

100

20

12

3600,55,3

3,55,600

17,780

3,73,380 3,73,380

Problems based on Ledger’s Preparationacc+hire+purchase+.pdf · Depreciation will be charge till...

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