CA Intermediate Exam > CA Intermediate Notes > Accounting (Old Scheme) > Important Questions & Answers: Hire Purchase
Important Questions & Answers: Hire Purchase
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Page 1
Hire Purchase
Q-1 On January 1, 20X1 Kasturi Ltd. acquired a Pick-up Van on hire purchase from Shorya Ltd. The terms of
the contract were as follows:
(a) The cash price of the van was ` 25,000.
(b) ` 10,000 were to be paid on signing of the contract.
(c) The balance was to be paid in annual instalments of ` 5,000 plus interest.
(d) Interest chargeable on the outstanding balance was 6% p.a.
(e) Depreciation at 10% p.a. is to be written-off using the straight-line method.
You are required to show the Van account & Shorya Ltd. account in the books of Kasturi Ltd. from
January 1, 20X1 to December 31, 20X3.
Ans. Ledger Accounts in the books of Kasturi
Van Account
Date Particulars ` Date Particulars `
1.1.20X1 To Shorya Ltd. 25,000 31.12.20X1 By Depreciation A/c 2,500
_____ 31.12.20X1 By Balance c/d 22,500
25,000 25,000
1.1.20X2 To Balance b/d 22,500 31.12.20X2 By Depreciation A/c 2,500
_____ 31.12.20X2 By Balance c/d 20,000
22,500 22,500
1.1.20X3 To Balance b/d 20,000 31.12.20X3 By Depreciation A/c 2,500
_____ 31.12.20X3 By Balance c/d 17,500
20,000 20,000
Shorya Ltd. Account
Date Particulars ` Date Particulars `
1.1.20X1 To Bank A/c 10,000 1.1.20X1 By Van A/c 25,000
31.12.20X1 To Bank A/c 5,900 31.12.20X1 By Interest A/c 900
31.12.20X1 To Balance c/d 10,000 ______
25,900 25,900
31.12.20X2 To Bank A/c 5,600 1.1.20X2 By Balance b/d 10,000
31.12.20X2 To Balance c/d 5,000 31.12.20X2 By Interest A/c 600
10,600 10,600
31.12.20X3 To Bank A/c 5,300 1.1.20X3 By Balance b/d 5,000
31.12.20X3 By Interest A/c 300 _____
5,300 5,300
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Page 2
Hire Purchase
Q-1 On January 1, 20X1 Kasturi Ltd. acquired a Pick-up Van on hire purchase from Shorya Ltd. The terms of
the contract were as follows:
(a) The cash price of the van was ` 25,000.
(b) ` 10,000 were to be paid on signing of the contract.
(c) The balance was to be paid in annual instalments of ` 5,000 plus interest.
(d) Interest chargeable on the outstanding balance was 6% p.a.
(e) Depreciation at 10% p.a. is to be written-off using the straight-line method.
You are required to show the Van account & Shorya Ltd. account in the books of Kasturi Ltd. from
January 1, 20X1 to December 31, 20X3.
Ans. Ledger Accounts in the books of Kasturi
Van Account
Date Particulars ` Date Particulars `
1.1.20X1 To Shorya Ltd. 25,000 31.12.20X1 By Depreciation A/c 2,500
_____ 31.12.20X1 By Balance c/d 22,500
25,000 25,000
1.1.20X2 To Balance b/d 22,500 31.12.20X2 By Depreciation A/c 2,500
_____ 31.12.20X2 By Balance c/d 20,000
22,500 22,500
1.1.20X3 To Balance b/d 20,000 31.12.20X3 By Depreciation A/c 2,500
_____ 31.12.20X3 By Balance c/d 17,500
20,000 20,000
Shorya Ltd. Account
Date Particulars ` Date Particulars `
1.1.20X1 To Bank A/c 10,000 1.1.20X1 By Van A/c 25,000
31.12.20X1 To Bank A/c 5,900 31.12.20X1 By Interest A/c 900
31.12.20X1 To Balance c/d 10,000 ______
25,900 25,900
31.12.20X2 To Bank A/c 5,600 1.1.20X2 By Balance b/d 10,000
31.12.20X2 To Balance c/d 5,000 31.12.20X2 By Interest A/c 600
10,600 10,600
31.12.20X3 To Bank A/c 5,300 1.1.20X3 By Balance b/d 5,000
31.12.20X3 By Interest A/c 300 _____
5,300 5,300
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Q-2 M/s Amar bought six Scooters from M/s Bhanu on 1st April, 2015 on the following terms:
Down payment ` 3,00,000
1st instalment payable at the end of 1st year ` 1,59,000
2nd instalment payable at the end of 2nd year ` 1,47,000
3rd instalment payable at the end of 3rd year ` 1,65,000
Interest is charged at the rate of 10% per annum.
M/s Amar provides depreciation @ 20% per annum on the diminishing balance method.
On 31st March, 2018 M/s Amar failed to pay the 3rd instalment upon which M/s Bhanu repossessed two
Scooters. M/s Bhanu agreed to leave the other four Scooters with M/s Amar and adjusted the value of
the repossessed Scooters against the amount due. The Scooters taken over were valued on the basis of
30% depreciation per annum on written down value. The balance amount remaining in the vendor's
account after the above adjustment was paid by M/s Amar after 5 months with interest@ 15% per
annum.
M/s Bhanu incurred repairing expenses of ` 15,000 on repossessed scooters and sold scooters for `
1,05,000 on 25th April, 2018.
You are required to :
(1) Calculate the cash price of the Scooters and the interest paid with each instalment.
(2) Prepare Scooters Account and M/s Bhanu Account in the books of M/s Amar.
(3) Prepare Goods Repossessed Account in the books of M/s Bhanu.
Ans.
(i) Calculation of Interest and Cash Price
No. of Outstanding Amount due Outstanding Interest Outstanding
installments balance at at the time of balance at balance at
the end installment the end the beginning
after the before the
ayment of payment of
installment installment
[1] [2] [3] [4] = 2 +3 [5] = 4 x 10/110 [6] = 4-5
3rd - 1,65,000 1,65,000 15,000 1,50,000
2nd 1,50,000 1,47,000 2,97,000 27,000 2,70,000
1st 2,70,000 1,59,000 4,29,000 39,000 3,90,000
Down 3,00,000
payment
Total of interest and Total cash price 81,000 6,90,000
(ii) In the books of M/s Amar
Scooters Account
Date Particulars ` Date Particulars `
1.4.2015 To Bhanu A/c 6,90,000 31.3.2016 By Depreciation A/c 1,38,000
By Balance c/d 5,52,000
6,90,000 6,90,000
1.4.2016 To Balance b/d 5,52,000 31.3.2017 By Depreciation A/c 1,10,400
Balance c/d 4,41,600
5,52,000 5,52,000
1.4.2017 To Balance b/d 4,41,600 31.3.2018 By Depreciation A/c 88,320
By M/s Bhanu a/c 78,890
(Value of 2 Scooters taken over)
By Profit and Loss A/c (Bal. fig.) 38,870
By Balance c/d 2,35,520
_______ 4 / 6 (4,41,600 - 88,320) ______
4,41,600 4,41,600
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Page 3
Hire Purchase
Q-1 On January 1, 20X1 Kasturi Ltd. acquired a Pick-up Van on hire purchase from Shorya Ltd. The terms of
the contract were as follows:
(a) The cash price of the van was ` 25,000.
(b) ` 10,000 were to be paid on signing of the contract.
(c) The balance was to be paid in annual instalments of ` 5,000 plus interest.
(d) Interest chargeable on the outstanding balance was 6% p.a.
(e) Depreciation at 10% p.a. is to be written-off using the straight-line method.
You are required to show the Van account & Shorya Ltd. account in the books of Kasturi Ltd. from
January 1, 20X1 to December 31, 20X3.
Ans. Ledger Accounts in the books of Kasturi
Van Account
Date Particulars ` Date Particulars `
1.1.20X1 To Shorya Ltd. 25,000 31.12.20X1 By Depreciation A/c 2,500
_____ 31.12.20X1 By Balance c/d 22,500
25,000 25,000
1.1.20X2 To Balance b/d 22,500 31.12.20X2 By Depreciation A/c 2,500
_____ 31.12.20X2 By Balance c/d 20,000
22,500 22,500
1.1.20X3 To Balance b/d 20,000 31.12.20X3 By Depreciation A/c 2,500
_____ 31.12.20X3 By Balance c/d 17,500
20,000 20,000
Shorya Ltd. Account
Date Particulars ` Date Particulars `
1.1.20X1 To Bank A/c 10,000 1.1.20X1 By Van A/c 25,000
31.12.20X1 To Bank A/c 5,900 31.12.20X1 By Interest A/c 900
31.12.20X1 To Balance c/d 10,000 ______
25,900 25,900
31.12.20X2 To Bank A/c 5,600 1.1.20X2 By Balance b/d 10,000
31.12.20X2 To Balance c/d 5,000 31.12.20X2 By Interest A/c 600
10,600 10,600
31.12.20X3 To Bank A/c 5,300 1.1.20X3 By Balance b/d 5,000
31.12.20X3 By Interest A/c 300 _____
5,300 5,300
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Q-2 M/s Amar bought six Scooters from M/s Bhanu on 1st April, 2015 on the following terms:
Down payment ` 3,00,000
1st instalment payable at the end of 1st year ` 1,59,000
2nd instalment payable at the end of 2nd year ` 1,47,000
3rd instalment payable at the end of 3rd year ` 1,65,000
Interest is charged at the rate of 10% per annum.
M/s Amar provides depreciation @ 20% per annum on the diminishing balance method.
On 31st March, 2018 M/s Amar failed to pay the 3rd instalment upon which M/s Bhanu repossessed two
Scooters. M/s Bhanu agreed to leave the other four Scooters with M/s Amar and adjusted the value of
the repossessed Scooters against the amount due. The Scooters taken over were valued on the basis of
30% depreciation per annum on written down value. The balance amount remaining in the vendor's
account after the above adjustment was paid by M/s Amar after 5 months with interest@ 15% per
annum.
M/s Bhanu incurred repairing expenses of ` 15,000 on repossessed scooters and sold scooters for `
1,05,000 on 25th April, 2018.
You are required to :
(1) Calculate the cash price of the Scooters and the interest paid with each instalment.
(2) Prepare Scooters Account and M/s Bhanu Account in the books of M/s Amar.
(3) Prepare Goods Repossessed Account in the books of M/s Bhanu.
Ans.
(i) Calculation of Interest and Cash Price
No. of Outstanding Amount due Outstanding Interest Outstanding
installments balance at at the time of balance at balance at
the end installment the end the beginning
after the before the
ayment of payment of
installment installment
[1] [2] [3] [4] = 2 +3 [5] = 4 x 10/110 [6] = 4-5
3rd - 1,65,000 1,65,000 15,000 1,50,000
2nd 1,50,000 1,47,000 2,97,000 27,000 2,70,000
1st 2,70,000 1,59,000 4,29,000 39,000 3,90,000
Down 3,00,000
payment
Total of interest and Total cash price 81,000 6,90,000
(ii) In the books of M/s Amar
Scooters Account
Date Particulars ` Date Particulars `
1.4.2015 To Bhanu A/c 6,90,000 31.3.2016 By Depreciation A/c 1,38,000
By Balance c/d 5,52,000
6,90,000 6,90,000
1.4.2016 To Balance b/d 5,52,000 31.3.2017 By Depreciation A/c 1,10,400
Balance c/d 4,41,600
5,52,000 5,52,000
1.4.2017 To Balance b/d 4,41,600 31.3.2018 By Depreciation A/c 88,320
By M/s Bhanu a/c 78,890
(Value of 2 Scooters taken over)
By Profit and Loss A/c (Bal. fig.) 38,870
By Balance c/d 2,35,520
_______ 4 / 6 (4,41,600 - 88,320) ______
4,41,600 4,41,600
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(iii) M/s Bhanu Account
Date Particulars ` Date Particulars `
1.4.15 To Bank (down payment) 3,00,000 1.4.15 By Scooters A/c 6,90,000
31.3.16 To Bank (1st Installment) 1,59,000 31.3.16 By Interest A/c 39,000
To Balance c/d 2,70,000 _______
7,29,000 7,29,000
31.3.17 To Bank (2nd Installment) 1,47,000 1.4.2016 By Balance b/d 2,70,000
To Balance c/d 1,50,000 31.3.2017 By Interest A/c 27,000
2,97,000 2,97,000
31.3.18 To Scooter A/c 78,890 1.4.2017 By Balance b/d 1,50,000
To Balance c/d (b.f.) 86,110 31.3.2018 By Interest A/c 15,000
1,65,000 1,65,000
31.8.18 To Bank (Amount 1.4.2018 By Balance b/d 86,110
settled after 5 months) 91,492 31.8.2018 By Interest A/c (@ 15 % 5,382
on bal.)
_____ (86,110 x 5 /12 x 15 /100) _____
91,492 91,492
(iv) In the Books of M/s Bhanu
Goods Repossessed A/c
Date Particulars ` Date Particulars `
31.3.18 To Amar A/c 78,890 31.3.2018 By Balance c/d 78,890
78,890 78,890
1.04.2018 To Balance b/d 78,890 25.4.2018 By Bank (Sale) 1,05,000
25.4.2018 To Repair A/c 15,000
25.4.2018 To Profit & Loss A/c 11,110 _______
1,05,000 1,05,000
Working Note:
Value of Scooters taken over `
2 Scooters (6,90,000/ 6 x 2) 2,30,000
Depreciation @ 30% WDV for 3 years
(69,000 + 48,300 +33,810) (1,51,110)
78,890
Q-3 Krishan bought 2 cars from 'Fair Value Motors Pvt. Ltd. on 1.4.2015 on the following terms (for both
cars):
Rs.
Down payment 6,00,000
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.
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Page 4
Hire Purchase
Q-1 On January 1, 20X1 Kasturi Ltd. acquired a Pick-up Van on hire purchase from Shorya Ltd. The terms of
the contract were as follows:
(a) The cash price of the van was ` 25,000.
(b) ` 10,000 were to be paid on signing of the contract.
(c) The balance was to be paid in annual instalments of ` 5,000 plus interest.
(d) Interest chargeable on the outstanding balance was 6% p.a.
(e) Depreciation at 10% p.a. is to be written-off using the straight-line method.
You are required to show the Van account & Shorya Ltd. account in the books of Kasturi Ltd. from
January 1, 20X1 to December 31, 20X3.
Ans. Ledger Accounts in the books of Kasturi
Van Account
Date Particulars ` Date Particulars `
1.1.20X1 To Shorya Ltd. 25,000 31.12.20X1 By Depreciation A/c 2,500
_____ 31.12.20X1 By Balance c/d 22,500
25,000 25,000
1.1.20X2 To Balance b/d 22,500 31.12.20X2 By Depreciation A/c 2,500
_____ 31.12.20X2 By Balance c/d 20,000
22,500 22,500
1.1.20X3 To Balance b/d 20,000 31.12.20X3 By Depreciation A/c 2,500
_____ 31.12.20X3 By Balance c/d 17,500
20,000 20,000
Shorya Ltd. Account
Date Particulars ` Date Particulars `
1.1.20X1 To Bank A/c 10,000 1.1.20X1 By Van A/c 25,000
31.12.20X1 To Bank A/c 5,900 31.12.20X1 By Interest A/c 900
31.12.20X1 To Balance c/d 10,000 ______
25,900 25,900
31.12.20X2 To Bank A/c 5,600 1.1.20X2 By Balance b/d 10,000
31.12.20X2 To Balance c/d 5,000 31.12.20X2 By Interest A/c 600
10,600 10,600
31.12.20X3 To Bank A/c 5,300 1.1.20X3 By Balance b/d 5,000
31.12.20X3 By Interest A/c 300 _____
5,300 5,300
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Q-2 M/s Amar bought six Scooters from M/s Bhanu on 1st April, 2015 on the following terms:
Down payment ` 3,00,000
1st instalment payable at the end of 1st year ` 1,59,000
2nd instalment payable at the end of 2nd year ` 1,47,000
3rd instalment payable at the end of 3rd year ` 1,65,000
Interest is charged at the rate of 10% per annum.
M/s Amar provides depreciation @ 20% per annum on the diminishing balance method.
On 31st March, 2018 M/s Amar failed to pay the 3rd instalment upon which M/s Bhanu repossessed two
Scooters. M/s Bhanu agreed to leave the other four Scooters with M/s Amar and adjusted the value of
the repossessed Scooters against the amount due. The Scooters taken over were valued on the basis of
30% depreciation per annum on written down value. The balance amount remaining in the vendor's
account after the above adjustment was paid by M/s Amar after 5 months with interest@ 15% per
annum.
M/s Bhanu incurred repairing expenses of ` 15,000 on repossessed scooters and sold scooters for `
1,05,000 on 25th April, 2018.
You are required to :
(1) Calculate the cash price of the Scooters and the interest paid with each instalment.
(2) Prepare Scooters Account and M/s Bhanu Account in the books of M/s Amar.
(3) Prepare Goods Repossessed Account in the books of M/s Bhanu.
Ans.
(i) Calculation of Interest and Cash Price
No. of Outstanding Amount due Outstanding Interest Outstanding
installments balance at at the time of balance at balance at
the end installment the end the beginning
after the before the
ayment of payment of
installment installment
[1] [2] [3] [4] = 2 +3 [5] = 4 x 10/110 [6] = 4-5
3rd - 1,65,000 1,65,000 15,000 1,50,000
2nd 1,50,000 1,47,000 2,97,000 27,000 2,70,000
1st 2,70,000 1,59,000 4,29,000 39,000 3,90,000
Down 3,00,000
payment
Total of interest and Total cash price 81,000 6,90,000
(ii) In the books of M/s Amar
Scooters Account
Date Particulars ` Date Particulars `
1.4.2015 To Bhanu A/c 6,90,000 31.3.2016 By Depreciation A/c 1,38,000
By Balance c/d 5,52,000
6,90,000 6,90,000
1.4.2016 To Balance b/d 5,52,000 31.3.2017 By Depreciation A/c 1,10,400
Balance c/d 4,41,600
5,52,000 5,52,000
1.4.2017 To Balance b/d 4,41,600 31.3.2018 By Depreciation A/c 88,320
By M/s Bhanu a/c 78,890
(Value of 2 Scooters taken over)
By Profit and Loss A/c (Bal. fig.) 38,870
By Balance c/d 2,35,520
_______ 4 / 6 (4,41,600 - 88,320) ______
4,41,600 4,41,600
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(iii) M/s Bhanu Account
Date Particulars ` Date Particulars `
1.4.15 To Bank (down payment) 3,00,000 1.4.15 By Scooters A/c 6,90,000
31.3.16 To Bank (1st Installment) 1,59,000 31.3.16 By Interest A/c 39,000
To Balance c/d 2,70,000 _______
7,29,000 7,29,000
31.3.17 To Bank (2nd Installment) 1,47,000 1.4.2016 By Balance b/d 2,70,000
To Balance c/d 1,50,000 31.3.2017 By Interest A/c 27,000
2,97,000 2,97,000
31.3.18 To Scooter A/c 78,890 1.4.2017 By Balance b/d 1,50,000
To Balance c/d (b.f.) 86,110 31.3.2018 By Interest A/c 15,000
1,65,000 1,65,000
31.8.18 To Bank (Amount 1.4.2018 By Balance b/d 86,110
settled after 5 months) 91,492 31.8.2018 By Interest A/c (@ 15 % 5,382
on bal.)
_____ (86,110 x 5 /12 x 15 /100) _____
91,492 91,492
(iv) In the Books of M/s Bhanu
Goods Repossessed A/c
Date Particulars ` Date Particulars `
31.3.18 To Amar A/c 78,890 31.3.2018 By Balance c/d 78,890
78,890 78,890
1.04.2018 To Balance b/d 78,890 25.4.2018 By Bank (Sale) 1,05,000
25.4.2018 To Repair A/c 15,000
25.4.2018 To Profit & Loss A/c 11,110 _______
1,05,000 1,05,000
Working Note:
Value of Scooters taken over `
2 Scooters (6,90,000/ 6 x 2) 2,30,000
Depreciation @ 30% WDV for 3 years
(69,000 + 48,300 +33,810) (1,51,110)
78,890
Q-3 Krishan bought 2 cars from 'Fair Value Motors Pvt. Ltd. on 1.4.2015 on the following terms (for both
cars):
Rs.
Down payment 6,00,000
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.
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Krishan provides depreciation @ 25% on the diminishing balances.
On 31.3.2018 Krishan failed to pay the 3rd installment upon which 'Fair Value Motors Pvt. Ltd.' repossessed
1 car. Krishan 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 Krishan after 3 months with interest@ 20% p.a.
You are required to: Calculate the cash price of the cars and the interest paid with each installment, and
prepare Car Account in the books of Krishan for the year 2017-18 assuming books are closed on March 31,
every year. Figures may be rounded off to the nearest rupee.
Ans.
Calculation of Interest and Cash Price
No. of Outstanding balance Amount due at the Outstanding Interest Outstanding
installment at the end after the time of installment balance at the end balance at
payment of installment before the payment the begining
of installment
(1) (2) (3) (4)= 2 + 3 (5)=4x10/110 (6)=4-5
3rs - 5,50,000 5,50,000 50,000 5,00,000
2nd 5,00,000 4,90,000 90,000 90,000 9,00,000
1st 9,00,000 4,20,000 13,20,000 1,20,000 12,00,000
Total cash price = Rs. 12,00,000+6,00,000 (down payment) = Rs.18,00,000
Cars Account in the boosk of Krishna for the year ended 31st March, 18
1.4.2017 To Balance 10,12,500 31.3.2018 By Depreciation A/c 2,53,125
b/d [18,00,000 less
depreciation
(4,50,000+
3,37,500)
By Fair value Morots 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)] 1,94,400
By Loss transferred to Profit and
Loss A/c on surrender (Bal.fig.) 1,85,288
By balance c/d
1 2
(10,12,500-2,53,125) 3,79,687
10,12,500 10,12,500
Q-4 The following particulars relate to hire purchase transactions:
(a) X purchased three cars from Y on hire purchase basis, the cash price of each car being Rs. 2,00,000.
(b) The hire purchaser charged depreciation @20% on diminishing balance method.
(c) Two cars were seized by on hire vendor when second installment was not paid at the end of the
second year. The hire vendor valued the two cars at cash price less 30% depreciation charged under
it diminishing balance method.
(d) The hire vendor spent Rs.10,000 on repairs of the cars and then sold them for a total amount of
Rs.1,70,000.
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Page 5
Hire Purchase
Q-1 On January 1, 20X1 Kasturi Ltd. acquired a Pick-up Van on hire purchase from Shorya Ltd. The terms of
the contract were as follows:
(a) The cash price of the van was ` 25,000.
(b) ` 10,000 were to be paid on signing of the contract.
(c) The balance was to be paid in annual instalments of ` 5,000 plus interest.
(d) Interest chargeable on the outstanding balance was 6% p.a.
(e) Depreciation at 10% p.a. is to be written-off using the straight-line method.
You are required to show the Van account & Shorya Ltd. account in the books of Kasturi Ltd. from
January 1, 20X1 to December 31, 20X3.
Ans. Ledger Accounts in the books of Kasturi
Van Account
Date Particulars ` Date Particulars `
1.1.20X1 To Shorya Ltd. 25,000 31.12.20X1 By Depreciation A/c 2,500
_____ 31.12.20X1 By Balance c/d 22,500
25,000 25,000
1.1.20X2 To Balance b/d 22,500 31.12.20X2 By Depreciation A/c 2,500
_____ 31.12.20X2 By Balance c/d 20,000
22,500 22,500
1.1.20X3 To Balance b/d 20,000 31.12.20X3 By Depreciation A/c 2,500
_____ 31.12.20X3 By Balance c/d 17,500
20,000 20,000
Shorya Ltd. Account
Date Particulars ` Date Particulars `
1.1.20X1 To Bank A/c 10,000 1.1.20X1 By Van A/c 25,000
31.12.20X1 To Bank A/c 5,900 31.12.20X1 By Interest A/c 900
31.12.20X1 To Balance c/d 10,000 ______
25,900 25,900
31.12.20X2 To Bank A/c 5,600 1.1.20X2 By Balance b/d 10,000
31.12.20X2 To Balance c/d 5,000 31.12.20X2 By Interest A/c 600
10,600 10,600
31.12.20X3 To Bank A/c 5,300 1.1.20X3 By Balance b/d 5,000
31.12.20X3 By Interest A/c 300 _____
5,300 5,300
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Q-2 M/s Amar bought six Scooters from M/s Bhanu on 1st April, 2015 on the following terms:
Down payment ` 3,00,000
1st instalment payable at the end of 1st year ` 1,59,000
2nd instalment payable at the end of 2nd year ` 1,47,000
3rd instalment payable at the end of 3rd year ` 1,65,000
Interest is charged at the rate of 10% per annum.
M/s Amar provides depreciation @ 20% per annum on the diminishing balance method.
On 31st March, 2018 M/s Amar failed to pay the 3rd instalment upon which M/s Bhanu repossessed two
Scooters. M/s Bhanu agreed to leave the other four Scooters with M/s Amar and adjusted the value of
the repossessed Scooters against the amount due. The Scooters taken over were valued on the basis of
30% depreciation per annum on written down value. The balance amount remaining in the vendor's
account after the above adjustment was paid by M/s Amar after 5 months with interest@ 15% per
annum.
M/s Bhanu incurred repairing expenses of ` 15,000 on repossessed scooters and sold scooters for `
1,05,000 on 25th April, 2018.
You are required to :
(1) Calculate the cash price of the Scooters and the interest paid with each instalment.
(2) Prepare Scooters Account and M/s Bhanu Account in the books of M/s Amar.
(3) Prepare Goods Repossessed Account in the books of M/s Bhanu.
Ans.
(i) Calculation of Interest and Cash Price
No. of Outstanding Amount due Outstanding Interest Outstanding
installments balance at at the time of balance at balance at
the end installment the end the beginning
after the before the
ayment of payment of
installment installment
[1] [2] [3] [4] = 2 +3 [5] = 4 x 10/110 [6] = 4-5
3rd - 1,65,000 1,65,000 15,000 1,50,000
2nd 1,50,000 1,47,000 2,97,000 27,000 2,70,000
1st 2,70,000 1,59,000 4,29,000 39,000 3,90,000
Down 3,00,000
payment
Total of interest and Total cash price 81,000 6,90,000
(ii) In the books of M/s Amar
Scooters Account
Date Particulars ` Date Particulars `
1.4.2015 To Bhanu A/c 6,90,000 31.3.2016 By Depreciation A/c 1,38,000
By Balance c/d 5,52,000
6,90,000 6,90,000
1.4.2016 To Balance b/d 5,52,000 31.3.2017 By Depreciation A/c 1,10,400
Balance c/d 4,41,600
5,52,000 5,52,000
1.4.2017 To Balance b/d 4,41,600 31.3.2018 By Depreciation A/c 88,320
By M/s Bhanu a/c 78,890
(Value of 2 Scooters taken over)
By Profit and Loss A/c (Bal. fig.) 38,870
By Balance c/d 2,35,520
_______ 4 / 6 (4,41,600 - 88,320) ______
4,41,600 4,41,600
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(iii) M/s Bhanu Account
Date Particulars ` Date Particulars `
1.4.15 To Bank (down payment) 3,00,000 1.4.15 By Scooters A/c 6,90,000
31.3.16 To Bank (1st Installment) 1,59,000 31.3.16 By Interest A/c 39,000
To Balance c/d 2,70,000 _______
7,29,000 7,29,000
31.3.17 To Bank (2nd Installment) 1,47,000 1.4.2016 By Balance b/d 2,70,000
To Balance c/d 1,50,000 31.3.2017 By Interest A/c 27,000
2,97,000 2,97,000
31.3.18 To Scooter A/c 78,890 1.4.2017 By Balance b/d 1,50,000
To Balance c/d (b.f.) 86,110 31.3.2018 By Interest A/c 15,000
1,65,000 1,65,000
31.8.18 To Bank (Amount 1.4.2018 By Balance b/d 86,110
settled after 5 months) 91,492 31.8.2018 By Interest A/c (@ 15 % 5,382
on bal.)
_____ (86,110 x 5 /12 x 15 /100) _____
91,492 91,492
(iv) In the Books of M/s Bhanu
Goods Repossessed A/c
Date Particulars ` Date Particulars `
31.3.18 To Amar A/c 78,890 31.3.2018 By Balance c/d 78,890
78,890 78,890
1.04.2018 To Balance b/d 78,890 25.4.2018 By Bank (Sale) 1,05,000
25.4.2018 To Repair A/c 15,000
25.4.2018 To Profit & Loss A/c 11,110 _______
1,05,000 1,05,000
Working Note:
Value of Scooters taken over `
2 Scooters (6,90,000/ 6 x 2) 2,30,000
Depreciation @ 30% WDV for 3 years
(69,000 + 48,300 +33,810) (1,51,110)
78,890
Q-3 Krishan bought 2 cars from 'Fair Value Motors Pvt. Ltd. on 1.4.2015 on the following terms (for both
cars):
Rs.
Down payment 6,00,000
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.
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Krishan provides depreciation @ 25% on the diminishing balances.
On 31.3.2018 Krishan failed to pay the 3rd installment upon which 'Fair Value Motors Pvt. Ltd.' repossessed
1 car. Krishan 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 Krishan after 3 months with interest@ 20% p.a.
You are required to: Calculate the cash price of the cars and the interest paid with each installment, and
prepare Car Account in the books of Krishan for the year 2017-18 assuming books are closed on March 31,
every year. Figures may be rounded off to the nearest rupee.
Ans.
Calculation of Interest and Cash Price
No. of Outstanding balance Amount due at the Outstanding Interest Outstanding
installment at the end after the time of installment balance at the end balance at
payment of installment before the payment the begining
of installment
(1) (2) (3) (4)= 2 + 3 (5)=4x10/110 (6)=4-5
3rs - 5,50,000 5,50,000 50,000 5,00,000
2nd 5,00,000 4,90,000 90,000 90,000 9,00,000
1st 9,00,000 4,20,000 13,20,000 1,20,000 12,00,000
Total cash price = Rs. 12,00,000+6,00,000 (down payment) = Rs.18,00,000
Cars Account in the boosk of Krishna for the year ended 31st March, 18
1.4.2017 To Balance 10,12,500 31.3.2018 By Depreciation A/c 2,53,125
b/d [18,00,000 less
depreciation
(4,50,000+
3,37,500)
By Fair value Morots 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)] 1,94,400
By Loss transferred to Profit and
Loss A/c on surrender (Bal.fig.) 1,85,288
By balance c/d
1 2
(10,12,500-2,53,125) 3,79,687
10,12,500 10,12,500
Q-4 The following particulars relate to hire purchase transactions:
(a) X purchased three cars from Y on hire purchase basis, the cash price of each car being Rs. 2,00,000.
(b) The hire purchaser charged depreciation @20% on diminishing balance method.
(c) Two cars were seized by on hire vendor when second installment was not paid at the end of the
second year. The hire vendor valued the two cars at cash price less 30% depreciation charged under
it diminishing balance method.
(d) The hire vendor spent Rs.10,000 on repairs of the cars and then sold them for a total amount of
Rs.1,70,000.
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You are required to compute:
(i) Agreed value of two cars taken back by the hire vendor
(ii) Book value of car left with the hire purchaser.
(iii) Profit or loss to hire purchaser on two cars taken back by their hire vendor,
(iv) Profit or loss of cars repossessed, when sold by the hire vendor.
Ans.
Rs.
(i) Price of two cars = Rs.2,00,000 x 2 4,00,000
Less; Depreciation for the first year @ 30% 1,20,000
2,80,000
Less: Depreciation for the second year = Rs.2, 80,000 x
30
100
84,000
Agreed value of two cars taken back by the hire vendor 1,96,000
(ii) Cash purchase price of one car 2,00,000
Less; Depreciation on Rs.2,00,000 @20% for the first year 40,000
Written drown value at the end of first year 1,60,000
Less; Depreciation on Rs.1,60,000 @ 20% for the second year 32,000
Book value of car left with the hire purchaser 1,28,000
(iii) Book value of one car as calculated in working note (ii) above 1,28,000
Book value of Two cars = Rs.1,28,000 x 2 2,56,000
Value at which the two cars were taken back, calculated in 1,96,000
working note (i) above
Hence, loss on cars taken back = Rs.2,56,000 - Rs.1,96,000 60,000
(iv) Sale proceeds of cars repossessed 1,70,000
Less: Value at which cars were taken back Rs.1,96,000
Repair Rs.10,000 2,06,000
Loss on resale 36,000
Q-5 On 1st April, 2017, X Ltd. sells a Trucks on hire purchase basis to Transporters & Co. for a total purchase
price of ` 18,00,000 payable as to ` 4,80,000 as down payment and the balance in three equal annual
instalments of ` 4,40,000 each payable on 31st March 2018, 2019 and 2020.
The hire vendor charges interest @ 10% per annum.
You are required to ascertain the cash price of the truck for Transporters & Co. Calculations may be
made to the nearest rupee.
Ans.
Rateof int erest 10
1
Ratio of interest and amount due = = =
11
100 Rateof int erest 110
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Read MoreFAQs on Important Questions & Answers: Hire Purchase
| 1. How do I record the down payment and initial entries for hire purchase transactions? |  |
Ans. The purchaser records the down payment as part of the asset cost, while the seller recognises it as part of sale proceeds. The hire purchase system requires separate accounting for the asset, liability, and interest components. The buyer debits the asset at its cash price equivalent, credits hire purchase payable, and adjusts for interest in subsequent periods using the effective interest method to avoid overstating asset value.
| 2. What's the difference between hire purchase and installment buying from an accounting perspective? | |
Ans. Hire purchase retains seller ownership until final payment; installment buying transfers ownership immediately. Under hire purchase, the buyer recognises a liability for future payments and depreciates based on expected asset life. Installment purchases treat the transaction as a regular sale with deferred payment terms, classifying amounts payable as simple debt without ownership restrictions or repossession clauses.
| 3. How do I calculate interest on hire purchase obligations each period? | |
Ans. Interest on hire purchase amounts is computed using the sum-of-digits method or effective interest rate approach. The sum-of-digits method allocates total interest proportionally across payment periods based on outstanding principal. The effective interest rate method applies a constant percentage to the diminishing liability balance, providing economically accurate interest recognition aligned with financial reporting standards for lease-like transactions.
| 4. Why do hire purchase agreements show an interest component separately from principal repayment? | |
Ans. Separating interest from principal ensures accurate liability valuation and prevents overstating the asset's cost. Interest represents the time value of money and financing charges, while principal reflects the asset's actual economic value. This distinction is critical for calculating depreciation correctly, determining carrying amounts on the balance sheet, and presenting true periodic expenses-making financial statements comparable across different purchase methods.
| 5. What adjustments are needed when the hire purchase asset is sold before the contract completes? | |
Ans. Upon early sale, the purchaser derecognises the asset and hire purchase payable, recognising any gain or loss on disposal. Remaining liability is settled from sale proceeds; any surplus or deficit affects profit or loss. The accounting entry credits the asset account, debits cash received, and adjusts the payable for unearned interest recovery, ensuring clean derecognition and accurate period-end financial position under hire purchase accounting standards.
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