Presentation is loading. Please wait.

Presentation is loading. Please wait.

Hire Purchase and Instalment Purchase system. Introduction There are different ways by which goods can be sold that is possession and as well ownership.

Similar presentations


Presentation on theme: "Hire Purchase and Instalment Purchase system. Introduction There are different ways by which goods can be sold that is possession and as well ownership."— Presentation transcript:

1 Hire Purchase and Instalment Purchase system

2 Introduction There 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 PurchaseInstalment Purchase It is an agreement of hiringIt is an agreement of sale The parties to contract are called hire purchaser and Hire vendor The parties to contact are called buyers and sellers. Only the possession of the goods is transferred not the ownership The ownership of the goods passes from seller to the buyer immediately at the time of sale The 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 account For Instalment due from Hire Purchase customers Hire purchase trading A/c Dr. To instalment Due For the goods sold on Hire purchase basis Hire purchase trading A/c Dr To goods sold on Hire purchase A/C

8 For cash received Bank A/cDr ToHire Purchase trading A/C For repossession of goods due to non payment of instalment Goods repossessed A/CDr To hire purchase trading A/C For closing stock of goods lying with customers Hire purchase stock A/cDr To Hire Purchase trading A/C For Instalments due from hire purchase customer at end of the year Instalments due A/CDr To Hire Purchase trading A/C

9 For loading of opening stock with customers Stock Reserve A/CDr To Hire Purchase trading A/C For loading of Closing Stock with customers Hire Purchase trading A/CDr To Stock reserve A/C For loading of Goods on Hire Purchase Goods sold on Hire Purchase A/CDr To Hire Purchase trading A/C

10 For profit or Loss on Hire purchase transaction Profit Hire Purchase A/C Dr To P/L A/C Loss P/L A/CDr To Hire Purchase trading A/C

11 Hire Purchase Trading A/c ParticularsRsParticularsRs To Opening Balances -Hire Purchase stock - Hire Purchase Debtors ******By Bank/Cash******* To goods sold on Hire Purchase******By Goods Repossessed A/C******* To Stock reserve A/c*****By closing balances - Hire Purchase Stock - Hire purchase Debtor ***** To profit and Loss A/C******By stock reserve A/C***** By goods sold on hire purchase***** By profit and Loss A/C*****

12 Stock And Debtors Method Under this method following six accounts are prepared: Hire Purchase Stock Account Hire Purchase Debtor Account Shop Stock Account Hire Purchase Adjustment Account Goods sold on Hire Purchase Account Goods Repossessed Account

13 Example Question Harish sells goods on Hire purchase at cost plus 50%, from the following particulars relating to the hire purchase department for the year ending 31 st 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 ParticularsRSParticularsRs To Balance b/d4,500By H.P. Debtors A/c33,000 To goods sold on H.P. A/c Cost 29,000 Profit 14,50043,500 By balance c/d (b.f.)15, , ,

15 Hire Purchase Debtor A/C ParticularsRSParticularRs To balance b/d25,00By Cash30,000 To Hire purchase stock A/C (b.f.) 33,000By goods repossessed A/C250 By H.P. Adjustment A/C750 To balance c/d4, , ,

16 Shop Stock A/c ParticularsRSParticularsRs To Balance b/d9,000By cost of goods sold on H.P. (b.f.)29,000 To Purchases A/c30,000By balance c/d10, ,000___________ _____________ 39,000 ____________

17 HP Adjustment A/c ParticularsRSParticularsRs To stock reserve A/c (( 50/150)*15000) 5,000By stock reserve A/c ((50/150)*4500) 1,500 To hire purchase debtors750By good sold on H.P. A/c ((50/150)*43500) 14,500 To hire expenses250 To profit and loss Account10, ,000 __________ _________ ___________ 16,000___________

18 Good sold on H.P. A/C ParticularsRsParticularsRs To H.P. adjustment A/c14,500By HP stock A/c`43,500 To Trading A/c29,000 __________________ 43,500 ________________ _________________ __________________ 43,500 ________________ _________________

19 Stock Reserve Account ParticularsRsParticularsRs To H.P. adjustment A/c1,500By balance b/d1,500 To balance c/d_________ 5,000_________ By H.P. adjustment A/c_________ 5,000 ____________ ______

20 HP Trading Account ParticularsRsParticularsRs To stock with customers4,500By cash a/c30,000 To instalments due2,500By goods repossessed a/c250 To goods sold on H.P. a/c43,500By HP stock a/c15,000 To stock reserve a/c5,000By instalment due a/c4,500 To hire expenses250By stock reserve a/c1,500 To net profit10,000By good sold on H.P. a/c14,500 ___________ 65,750___________ _________ 65,750__________

21 Thank You


Download ppt "Hire Purchase and Instalment Purchase system. Introduction There are different ways by which goods can be sold that is possession and as well ownership."

Similar presentations


Ads by Google