On 1st aprial,2014 sharad purchased a machine on hire purchase under a...
Calculation of Cash Price of the Machine:
- The total amount of instalments to be paid is Rs. 8,000 (4 instalments of Rs. 2,000 each).
- The interest rate is 6% per annum, which means the interest for six months is 3% (6%/2).
- The interest on the balance amount of Rs. 6,500 (Rs. 8,000 - Rs. 1,500) for six months is Rs. 195 (Rs. 6,500 x 3%).
- The cash price of the machine is the sum of initial payment and the total amount of instalments, minus the interest on the balance amount. Therefore,
- Cash Price = Rs. 1,500 + (Rs. 2,000 x 4) - Rs. 195 = Rs. 8,305
Preparation of Hire Vendor's Account in Hire Purchaser's Books:
- Hire Vendor's Account is a nominal account and is credited with the cash price of the machine.
- The initial payment of Rs. 1,500 is debited to the Hire Vendor's Account.
- Each instalment of Rs. 2,000 is debited to the Hire Vendor's Account as and when it becomes due.
- The interest on the balance amount of Rs. 6,500 is debited to the Hire Vendor's Account.
- The total of all the debits to the Hire Vendor's Account should equal the cash price of the machine.
- The Hire Vendor's Account is closed by transferring the balance (if any) to the Profit and Loss Account.
Explanation:
- Hire Purchase is a system of buying goods in which the purchaser pays an initial amount (known as down payment) and the balance in instalments over a period of time.
- In this question, Sharad purchased a machine on hire purchase and paid an initial amount of Rs. 1,500. The balance amount of Rs. 8,305 (cash price of the machine) was to be paid in four equal instalments of Rs. 2,000 each.
- The interest rate was 6% per annum, which means the interest for six months (one instalment period) was 3%. The interest on the balance amount was calculated accordingly.
- The cash price of the machine was calculated by adding the initial payment and the total amount of instalments, and subtracting the interest on the balance amount.
- The Hire Vendor's Account is maintained in the books of the Hire Purchaser to record the transactions related to the hire purchase. The account is debited with the down payment, each instalment and the interest on the balance amount. The account is credited with the cash price of the machine.
- The Hire Vendor's Account is closed by transferring the balance (if any) to the Profit and Loss Account.
On 1st aprial,2014 sharad purchased a machine on hire purchase under a...
Calculate cash price if paid Rs 2800 at time of contract, 4 annual installments were paid respectively Rs 3120, Rs 2480, Rs 1880 and Rs 1320. Rate of interest 10%.