2 IntroductionThere are different ways by which goods can be sold that is possession and as well ownership of goods will be passed form the seller to the purchaser. Goods can be sold for cash as well as for credit. Another way of selling goods is either on instalment purchase system or hire purchase system.
3 Instalment purchase system : The possession and ownership of goods immediately passes from the seller to the buyer but the payment of the total price will be made in the instalments.Hire Purchase :The buyer acquires the possession of the goods immediately and agrees to pay the total hire purchase price in Instalments.
4 Terms Used in Hire Purchase Transactions Hire Purchaser or hirer: He is the buyer of the goods.Hire Vendor: He is the seller of the goods.Cash price : It is the price on which purchaser can buy goods for cash.Hire Purchase Price: It is the total amount which the Hire Purchaser is required to pay to the hire vendor.Down Payment: It is the price which is paid by the hire purchaser to the vendor at the time of agreement.
5 Interest : It is the cost of borrowed funds to the asset. Instalments: These are convenient amounts in which the hire purchase price is split.Instalments Due: These are instalments which are due in the accounting period but not paid by the hire purchaser.
6 Hire Purchase Instalment Purchase It is an agreement of hiring It is an agreement of saleThe parties to contract are called hire purchaser and Hire vendorThe parties to contact are called buyers and sellers.Only the possession of the goods is transferred not the ownershipThe ownership of the goods passes from seller to the buyer immediately at the time of saleThe buyer can return the goods to the vendor if he does not want to pay the rest of instalments.The buyer can’t escape the liability for the payment of future instalments by returning the goods.The buyer can’t hire out, sell,transfer,destroy or damage the goods. As the buyer becomes the owner of the goods he can dispose the goods in any manner as he likes.
7 Hire Vendors book For the opening stock of goods. Hire purchase trading A/C Dr.To Hire purchase stock accountFor Instalment due from Hire Purchase customersHire purchase trading A/c Dr.To instalment DueFor the goods sold on Hire purchase basisHire purchase trading A/c DrTo goods sold on Hire purchase A/C
8 For cash receivedBank A/c Dr ToHire Purchase trading A/CFor repossession of goods due to non payment of instalmentGoods repossessed A/C DrTo hire purchase trading A/CFor closing stock of goods lying with customersHire purchase stock A/c DrTo Hire Purchase trading A/CFor Instalments due from hire purchase customer at end of the yearInstalments due A/C Dr
9 For loading of opening stock with customers Stock Reserve A/C DrTo Hire Purchase trading A/CFor loading of Closing Stock with customersHire Purchase trading A/C DrTo Stock reserve A/CFor loading of Goods on Hire PurchaseGoods sold on Hire Purchase A/C Dr
10 For profit or Loss on Hire purchase transaction Hire Purchase A/C DrTo P/L A/CLossP/L A/C DrTo Hire Purchase trading A/C
11 Hire Purchase Trading A/c ParticularsRsTo Opening Balances-Hire Purchase stock- Hire Purchase Debtors******By Bank/Cash*******To goods sold on Hire PurchaseBy Goods Repossessed A/CTo Stock reserve A/c*****By closing balances- Hire Purchase Stock- Hire purchase DebtorTo profit and Loss A/CBy stock reserve A/CBy goods sold on hire purchaseBy profit and Loss A/C
12 Stock And Debtors Method Under this method following six accounts are prepared:Hire Purchase Stock AccountHire Purchase Debtor AccountShop Stock AccountHire Purchase Adjustment AccountGoods sold on Hire Purchase AccountGoods Repossessed Account
13 ExampleQuestion Harish sells goods on Hire purchase at cost plus 50% , from the following particulars relating to the hire purchase department for the year ending 31st dec 2009, prepare H.P A/C and Stock reserve account. Jan1 Stock with Hire Purchase customer at selling price Rs Jan1 Stock at shop at cost Rs 9,000 Jan1 Instalment due Rs 2,500 Jan1 Cash received from customers Rs30,000. Dec31 Goods purchased during the year Rs30,000. Dec31 Goods repossessed (Instalments due Rs 1000 ) Valued at Rs250. Dec31 Hire Expenses Rs250 Dec31 Instalment due customer’s paying 4,500. Dec31 Stock at shop at cost (Excluding repossessed goods) Rs10,000.
14 Solution Hire Purchase stock A/C ParticularsRSRsTo Balance b/d4,500By H.P. Debtors A/c33,000To goods sold on H.P. A/cCost ,000Profit ,50043,500By balance c/d (b.f.)15,00048,000
16 Shop Stock A/c Particulars RS Rs To Balance b/d 9,000 By cost of goods sold on H.P. (b.f.)29,000To Purchases A/c30,000By balance c/d10,00039,000_______________________________________________
17 HP Adjustment A/c Particulars RS Rs To stock reserve A/c (( 50/150)*15000)5,000By stock reserve A/c((50/150)*4500)1,500To hire purchase debtors750By good sold on H.P. A/c((50/150)*43500)14,500To hire expenses250To profit and loss Account10,00016,000____________________________________________________
18 Good sold on H.P. A/C Particulars Rs To H.P. adjustment A/c 14,500 By HP stock A/c`43,500To Trading A/c29,000___________________________________________________
19 Stock Reserve Account Particulars Rs To H.P. adjustment A/c 1,500 By balance b/dTo balance c/d_________5,000__________________By H.P. adjustment A/c_________5,000
20 HP Trading Account Particulars Rs To stock with customers 4,500 By cash a/c30,000To instalments due2,500By goods repossessed a/c250To goods sold on H.P. a/c43,500By HP stock a/c15,000To stock reserve a/c5,000By instalment due a/cTo hire expensesBy stock reserve a/c1,500To net profit10,000By good sold on H.P. a/c14,500___________65,750_______________________________65,750____________________