{"id":12017,"date":"2024-03-20T15:48:24","date_gmt":"2024-03-20T10:18:24","guid":{"rendered":"https:\/\/gstguntur.com\/?p=12017"},"modified":"2024-03-21T09:29:33","modified_gmt":"2024-03-21T03:59:33","slug":"hire-purchase-and-instalment-sale-transactions-ca-inter-accounts-study-material","status":"publish","type":"post","link":"https:\/\/gstguntur.com\/hire-purchase-and-instalment-sale-transactions-ca-inter-accounts-study-material\/","title":{"rendered":"Hire Purchase and Instalment Sale Transactions \u2013 CA Inter Accounts Study Material"},"content":{"rendered":"

Hire Purchase and Instalment Sale Transactions \u2013 CA Inter Accounting Study Material<\/a> is designed strictly as per the latest syllabus and exam pattern.<\/p>\n

Hire Purchase and Instalment Sale Transactions \u2013 CA Inter Accounts Study Material<\/h2>\n

Theory Questions<\/strong><\/p>\n

Question 1.
\nWhat are the differences between Hire Purchase and Instalment System? (4 marks) (Nov. 2014)
\nAnswer:
\nDifferences between Hire Purchase and Instalment System<\/p>\n

\"Hire
\n\"Hire<\/p>\n

Question 2.
\nDistinguish between Hire Purchase System and Instalment system. (4 marks) (May 2017)
\nAnswer:
\nDifferences between Hire Purchase and Instalment System<\/p>\n

\"Hire
\n\"Hire<\/p>\n

\"Hire<\/p>\n

Question 3.
\nExplain the special features of hire purchase agreement. (4 marks) (Nov. 2017)
\nAnswer:
\nSpecial features of Hire Purchase Agreement<\/p>\n

    \n
  1. Possession:
    \nThe hire vendor transfers possession of the goods to the hire purchaser immediately after the contract for hire purchase is made.<\/li>\n
  2. Instalments:
    \nThe goods are delivered by the hire vendor on the condition that a hire purchaser should pay the amount in periodical instalments.<\/li>\n
  3. Down Payment:
    \nThe hire purchaser generally makes a down payment i.e. an amount on signing the agreement.<\/li>\n
  4. Constituents of Hire purchase instalments:
    \nEach instalment consists partly of a finance charge (interest) and partly of a capital payment.<\/li>\n
  5. Ownership:
    \nThe property in goods is to pass to the hire purchaser on the payment of the last instalment and exercising the option conferred upon him under the agreement.<\/li>\n
  6. Repossession:
    \nIn case of default in respect of payment of even the last instalment, the hire vendor has the right to take the goods back without making any compensation.<\/li>\n<\/ol>\n

    Computation Of Interest; Cash Retail Price<\/strong><\/p>\n

    Question 4.
    \nOn 1st April, 2009 a car company sold to Arya Bros., a motor car on hire-purchase basis. The total hire-purchase price was \u20b9 4,60,000 with down payment of \u20b9 1,60,000. Balance amount was to be paid in three annual instalments of \u20b9 1,00,000 each. The first instalment payable on 31st March, 2010. The cash price of the car was \u20b9 4,00,000.
    \nHow will Arya Bros, account for interest over three accounting years assuming books of account are closed on 31st March every year? (2 Marks) {May 2010)
    \nAnswer:
    \nTotal interest on hire purchase transactions = \u20b9 4,60,000 – \u20b9 4,00,000 = \u20b9 60,000
    \nAs balance payment is made in three equal instalments, so interest is to be allocated in the ratio of 3:2:1
    \nTherefore, interest for 1st year = \u20b9 60,000 \u00d7 \\(\\frac{3}{6}\\) = \u20b9 30,000
    \nfind year = \u20b9 60,000 \u00d7 \\(\\frac{2}{6}\\) = \u20b9 20,000
    \nBird year = \u20b9 60,000 \u00d7 \\(\\frac{1}{6}\\) = \u20b9 10,000<\/p>\n

    \"Hire<\/p>\n

    Question 5.
    \nG Ltd, acquired a delivery van on hire purchase on 01.04.2014 from Gab a Enterprises. The terms were as follows:
    \n\"Hire
    \nCash price of van \u20b9 1,50,000 and depreciation is charged at 10% WDV.
    \nYou are required to calculate Total Interest and Interest included in each instalment (RTP)
    \nAnswer:
    \nCalculation of total Interest and Interest included in each instalment Hire Purchase Price (HPP) = Down Payment + instalments = 30,000 + 50,000 + 50,000 + 30,000 + 20,000 = 1,80,000
    \nTotal Interest = 1,80,000 – 1,50,000 = 30,000<\/p>\n

    Computation of Ratio of HPP
    \n\"Hire
    \nRatio of outstanding HPP at beginning for each year = 15 : 10 : 5 : 2
    \nTotal Interest is of \u20b9 30,000
    \n\"Hire<\/p>\n

    Question 6.
    \n(i) From the following, calculate the cash price of the asset:
    \n\"Hire
    \n(ii) On 1st April, 2009 a car company sold to Arya Bros., a motor car on hire-purchase basis. The total hire-purchase price was \u20b9 4,60,000 with down payment of \u20b9 1,60,000. Balance amount was to be paid in three annual instalments of \u20b9 1,00,000 each. The first instalment payable on 31st March, 2010. The cash price of the car was \u20b9 4,00,000.
    \nHow will Arya Bros, account for interest over three accounting years assuming books of account are closed on 31st March every year? (2 \u00d7 2 = 4 Marks) (May 2010)
    \nAnswer:
    \n(i) Computation of cash price of the asset
    \n\"Hire
    \nCash price of the asset = Down payment + \u20b9 35,459
    \n= \u20b9 10,000 + \u20b9 35,459
    \n= \u20b9 45,459<\/p>\n

    (ii) Total interest on hire purchase transactions = \u20b9 4,60,000 – \u20b9 4,00,000 = \u20b9 60,000
    \nAs balance payment is made in three equal instalments, so interest is to be allocated in the ratio of 3 : 2 : 1
    \nTherefore, interest for 1st year = \u20b9 60,000 \u00d7 \\(\\frac{3}{6}\\) = \u20b9 30,000
    \nIInd year = \u20b9 60,000 \u00d7 \\(\\frac{2}{6}\\) = \u20b9 20,000
    \nIIIrd year = \u20b9 60,000 \u00d7 \\(\\frac{1}{6}\\) = \u20b9 10,000<\/p>\n

    \"Hire<\/p>\n

    Question 7.
    \nOn 1st April, 2012, Fastrack Motors Co. sells a truck on hire purchase basis to Teja Transport Co. for a total hire purchase price of \u20b9 9,00,000 payable as to \u20b9 2,40,000 as Question No. 1 is compulsory Candidates are also required to answer any five questions from the remaining six questions. Wherever necessary suitable assumptions may be made and disclosed by way of a note. Working Notes should form part of the answer. (5 Marks) (Nov. 2012)
    \nAnswer:
    \nRatio of interest and amount due \\(=\\frac{\\text { Rate of interest }}{100+\\text { Rate of interest }}\\) = \\(\\frac{10}{110}\\) = 1\/11
    \nThere is no interest element in the down payment as it is paid on the date of the transaction. Instalments paid after certain period includes interest portion also. Therefore, to ascertain cash price, interest will be calculated from last instalment to first instalment as follows:
    \nComputation of Interest and Cash Price
    \n\"Hire
    \nTotal cash price = \u20b9 5,47,107 + 2,40,000 (down payment) = \u20b9 7,87,107.<\/p>\n

    Working Notes:<\/strong><\/p>\n

      \n
    1. \u20b9 2,00,000 + 2nd instalment of \u20b9 2,20,000 = \u20b9 4,20,000.<\/li>\n
    2. \u20b9 3,81,818 + 1st instalment of \u20b9 2,20,000 = \u20b9 6,01,818.<\/li>\n<\/ol>\n

      Problems Without Repossession<\/strong><\/p>\n

      Question 8.
      \nHappy Valley Florists Ltd. acquired a delivery van on hire purchase on 01.04.2010 from Ganesh Enterprises. The terms were as follows:
      \n\"Hire
      \nCash price of van \u20b9 1,50,000 and depreciation is charged at 10% WDV.<\/p>\n

      You are required to:<\/p>\n

        \n
      1. Calculate Total Interest and Interest included in each instalment<\/li>\n
      2. Prepare Van A\/c., Ganesh Enterprises A\/c. in the books of Happy Valley Florists Ltd. up to 31.03.2014. (8 Marks) (May 2014)<\/li>\n<\/ol>\n

        Answer:
        \nComputation of total Interest and Interest included in each instalment
        \nHire Purchase Price (HPP) = Down Payment + instalments
        \n= 30,000 + 50,000 + 50,000 + 30,000 + 20,000
        \n= 1,80,000
        \nTotal Interest = 1,80,000 – 1,50,000 = 30,000<\/p>\n

        Calculation of Ratio of HPP in beginning of each year
        \n\"Hire<\/p>\n

        1. Ratio of outstanding HPP at beginning for each year = 15 : 10 : 5 : 2 Total Interest is of \u20b9 30,000
        \n\"Hire
        \n\"Hire<\/p>\n

        Books of Happy Valley Florist Ltd. Van A\/c
        \n\"Hire<\/p>\n

        Ganesh Enterprises A\/c
        \n\"Hire<\/p>\n

        \"Hire<\/p>\n

        Question 9.
        \nM\/s. Kodam Enterprises purchased a generator on hire purchase from M\/s. Sanctum Ltd. on 1st April, 2017. The hire purchase price was \u20b9 48,000. Down payment was \u20b9 12,000 and the balance is payable in 3 annual instalments
        \nof \u20b9 12,000 each payable at the end of each financial year. Interest is payable @ 8% p.a. and is included in the annual payment of \u20b9 12,000.
        \nDepreciation at 10% p.a. is to be written of using the straight -line method.
        \nYou are required to:<\/p>\n

        (i) calculate the cash price of the generator and the interest paid on each instalment.
        \n(ii) pass relevant journal entries in the books of M\/s. Kodam Enterprises from 1 st April, 2017 to 31 st March, 2018 following the interest suspense method. (8 Marks) (May 2018)<\/p>\n

        Answer:<\/p>\n

        (i) Computation of Interest and Cash Price
        \nRatio of interest and amount due = 8\/(100 + rate of interest) Le. 8\/108
        \nTo ascertain cash price, interest will be calculated from last instalment to first instalment as follows:
        \n\"Hire
        \nTotal cash price = \u20b9 30,925 + 12,000 (down payment) = \u20b9 42,925<\/p>\n

        Working Notes:<\/p>\n

          \n
        1. \u20b9 11,111 + 2nd instalment of \u20b9 12,000 = \u20b9 23,111<\/li>\n
        2. \u20b9 21,399 + 1st instalment of \u20b9 12,000 = \u20b9 33,399<\/li>\n<\/ol>\n

          (ii) Journal Entries
          \nBooks of M\/s Kodam Enterprises
          \n\"Hire
          \n\"Hire<\/p>\n

          Problems With Repossession<\/strong><\/p>\n

          Question 10.
          \nThe following particulars relate to hire purchase transactions:
          \n(a) X purchased three cars from Y on hire purchase basis, the cash price of each car being \u20b9 2,00,000.
          \n(b) The hire purchaser charged depreciation @ 20% on diminishing balance method.
          \n(c) Two cars were seized by on hire vendor when second instalment 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.
          \n(d) The hire vendor spent \u20b9 10,000 on repairs of the cars and then sold them for a total amount of \u20b9 1,70,000.
          \nYou are required to compute:<\/p>\n

          (i) Agreed value of two cars taken back by the hire vendor.
          \n(ii) Book value of car left with the hire purchaser.
          \n(iii) Profit or loss to hire purchaser on two cars taken back by the hire vendor.
          \n(iv) Profit or loss of cars repossessed, when sold by the hire vendor. (RTP)<\/p>\n

          Answer:
          \n\"Hire<\/p>\n

          \"Hire<\/p>\n

          Question 11.
          \nOn 1st April, 2012, M\/s. Power Motors sold on hire purchase basis a truck whose cash price was \u20b9 9,00,000 to M\/s. Singh & Singh, a transport firm. The terms of the contract were that the transporters were to pay \u20b9 3,00,000 down and six four-monthly instalments of \u20b9 1,00,000 plus interest on outstanding amount of cash price for the intervening four months. The instalments were payable on 31st July, 30th November and 31st March in each one of the two accounting years. Interest was calculated @ 12% per annum.<\/p>\n

          M\/s. Singh & Singh duly paid the instalment on 31st July, 2012 but failed to pay the instalment on 30th November, 2012. M\/s. Power Motors, after legal formalities, repossessed the truck valuing it at \u20b9 7,00,000.
          \nM\/s. Power Motors spent \u20b9 80,000 on repairs and repainting of the truck and on 7th January, 2013 sold it for \u20b9 7,50,000 cash.<\/p>\n

          You are required to prepare M\/s. Singh & Singh\u2019s A\/c and Goods Repossessed Account in the books of M\/s. Power Motors. (6 Marks) (May 2013)
          \nAnswer:
          \nIn the books of M\/s. Power Motors M\/s. Singh & Singh\u2019s A\/c
          \n\"Hire<\/p>\n

          Goods Repossessed A\/c
          \n\"Hire<\/p>\n

          Question 12.
          \nLucky bought 2 tractors from Happy on 1-10-2011 on the following terms:<\/p>\n

          \"Hire
          \nLucky provides depreciation @ 20% on the diminishing balances.<\/p>\n

          On 30-9-2014 Lucky failed to pay the 3rd instalment upon which Happy repossessed 1 tractor. Happy agreed to leave one 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\u2019s account after the above adjustment was paid by Lucky after 3 months with interest @ 18% p.a.
          \nYou are required to:<\/p>\n

            \n
          1. Calculate the cash price of the tractors and the interest paid with each instalment.<\/li>\n
          2. Prepare Tractor Account and Happy Account in the books of Lucky assuming that books are closed on September 30 every year. Figures may be rounded off to the nearest rupee. (8 Marks) (May 2015)<\/li>\n<\/ol>\n

            Answer:
            \nComputation of Interest and Cash Price
            \n\"Hire
            \nTotal cash price = \u20b9 6,50,000 + 5,00,000 (down payment) = \u20b9 11,50,000.<\/p>\n

            Books of Lucky Tractor A\/c
            \n\"Hire
            \n\"Hire<\/p>\n

            Happy A\/c
            \n\"Hire<\/p>\n

            \"Hire<\/p>\n

            Question 13.
            \nGirish Transport Ltd. purchased from NCR Motors 3 electric rickshaws costing \u20b9 60,000 each on the hire purchase system on 01.01.2013. Payment was to be made \u20b9 30,000 down and the remainder in 3 equal instalments 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 instalment 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.<\/p>\n

            Show the necessary Ledger accounts in the books of Girish Transport Ltd. for the years 2013, 2014, and 2015. (8 Marks) (May 2016)
            \nAnswer:
            \nBooks of Girish Transport Ltd.
            \nE-Rickshaw A\/c
            \n\"Hire<\/p>\n

            NCR Motors A\/c
            \n\"Hire<\/p>\n

            Note:
            \nIn the absence of any information it has been assumed that the balance payment amounting \u20b9 56,320 had not been made till 31st Dec. 2015.<\/p>\n

            Question 14.
            \nSrikumar bought 2 cars from \u2018Fair Value Motors Pvt. Ltd\u2019, on 1.4.2012 on the following terms:
            \nDown payment – 6,00,000
            \n1st Instalment at the end of first year – 4,20,000
            \n2nd Instalment at the end of 2nd year – 4,90,000
            \n3rd Instalment at the end of 3rd year – 5,50,000
            \nInterest is charged at 10% p.a.
            \nSrikumar provides depreciation @ 25% on the diminishing balances.<\/p>\n

            On 31.3.2015 Srikumar failed to pay the 3rd instalment upon which \u2018Fair 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\u2019s account after the above adjustment was paid by Srikumar after 3 months with interest @ 20% p.a.<\/p>\n

            You are required to:<\/p>\n

            (i) Calculate the cash price of the cars and the interest paid with each instalment.
            \n(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. (8 Marks) (Nov. 2016)<\/p>\n

            Answer:<\/p>\n

            (i) Computation of Interest and Cash Price
            \n\"Hire
            \nTotal cash price = \u20b9 12,00,000 + 6,00,000 (down payment) = \u20b9 18,00,000.<\/p>\n

            (ii) In the books of Srikumar
            \nCars A\/c
            \n\"Hire
            \n\"Hire
            \n* May be rounded off as 1,85,287. In that case, the balance in cars account will be 3,79,688.<\/p>\n

            Fair Value Motors Pvt. Ltd. A\/c
            \n\"Hire
            \n\"Hire<\/p>\n","protected":false},"excerpt":{"rendered":"

            Hire Purchase and Instalment Sale Transactions \u2013 CA Inter Accounting Study Material is designed strictly as per the latest syllabus and exam pattern. Hire Purchase and Instalment Sale Transactions \u2013 CA Inter Accounts Study Material Theory Questions Question 1. What are the differences between Hire Purchase and Instalment System? (4 marks) (Nov. 2014) Answer: Differences …<\/p>\n

            Hire Purchase and Instalment Sale Transactions \u2013 CA Inter Accounts Study Material<\/span> Read More »<\/a><\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"spay_email":"","footnotes":""},"categories":[167],"tags":[],"jetpack_featured_media_url":"","_links":{"self":[{"href":"https:\/\/gstguntur.com\/wp-json\/wp\/v2\/posts\/12017"}],"collection":[{"href":"https:\/\/gstguntur.com\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/gstguntur.com\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/gstguntur.com\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/gstguntur.com\/wp-json\/wp\/v2\/comments?post=12017"}],"version-history":[{"count":4,"href":"https:\/\/gstguntur.com\/wp-json\/wp\/v2\/posts\/12017\/revisions"}],"predecessor-version":[{"id":12066,"href":"https:\/\/gstguntur.com\/wp-json\/wp\/v2\/posts\/12017\/revisions\/12066"}],"wp:attachment":[{"href":"https:\/\/gstguntur.com\/wp-json\/wp\/v2\/media?parent=12017"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/gstguntur.com\/wp-json\/wp\/v2\/categories?post=12017"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/gstguntur.com\/wp-json\/wp\/v2\/tags?post=12017"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}