Recording Date: May 24, 2013

Hire Purchase and

Installment Sale Transactions
Part 2
IPCC Paper 1 Accounting Chapter 11
Prof. Deepak Jaggi

The Institute of Chartered Accountants of India

Disclaimer Statement

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This lecture has been delivered by faculty members to supplement the Study
Material, Practice Manual and other content

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The content of this video lecture has not been specifically discussed by the
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Important Notes

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This e-Lecture was Recorded on:

May 24, 2013

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Learning Objectives

(1) To Lay a foundation of accounting

treatment for Ascertainment of Profit
(2) To gain the ability to solve
problems relating to final accounts
(3) Understand to prepare the HP
Trading A/c

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Ascertainment of Profit Stage

H. P. Trading A/c Method

Stock & Debtors Method

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H. P. Trading Method
Profit /
Loss A/c
H. P. Trading A/c
Prepared to find out gross profit in
H.P. Transactions

General
Trading A/c
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H.P. Trading A/c

Steps

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Cost of the goods

sent on H.P.

H.P. Sales

H.P. Stock

Stock Reserve

Repossessed
Stock

Cost of Goods Sent on H.P.

It is cost price and not cash
price

No. of units sent / sold x Cost

per unit

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H.P. Sales
Part of Sales

Due in
Current Year
Whether
money
received or
not

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Contd.

Formulae for H.P. Sales

Down payment
+ installment received

+ Installment still to be received x

H.P. Sales

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x
x
x

H.P. Stock

Part of Sales

Not due in the

current year

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Formulae for H.P. Stock

Total H. P. Price of Goods sent on H. P.

(-) H. P. Sales

X
x

(-) Unpaid Installment on Repossessed Stock

H.P. Stock
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X
X

Stock Reserve

Unrealized
Profit
Included in
H.P. Stock

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Repossessed Stock

Re-Possessed
Stock

Either at Agreed
Value

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Vendor takes the

product back

Or at Cost of Unpaid
Installments of
Repossessed Stock

Model of H.P. Trading Account

Particulars

Particulars

To Op. HP Stock

X By Stock Reserve (op.)

To Goods sent on HP

X By HP Sales

To Stock Reserve

X By HP Stock

To Gross Profit

X By Repossessed Stock

XXX

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XXX

Entries
(1) For Goods sent on H. P.
Cost
(a) H. P. Trading A/c . Dr.
To Goods sent on HP
(b) Goods sent on HP. Dr.
To General Trading A/c

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Entries
(2) For H.P. Sales
H.P. Sales A/c .. Dr.
To H.P. Trading A/c

(3) For H.P. Stock

H.P. Stock A/c Dr.
To H.P. Trading A/c
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Entries
(4) For Stock Reserve
HP Trading A/c Dr.
To Stock Reserve

(5) For Repossessed Stock

Repossessed Stock A/c . Dr.

To HP Trading A/c

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Question No.1

Krishna Agencies started business on 1st April, 2006. During the year ended
31st March, 2007, they sold under mentioned durables under two schemes.
Cash Price Scheme (CPS) and Hire Purchase Scheme (HPS)
Under the CPS they prices the goods at cost plus 25% and collected it on
delivery Under the HPS, the buyers were required to sign a Hire Purchase
Agreement Undertaking to pay for the value of the goods including finance
charges in 30 installments, the value being calculated at Cash Price plus 50%.
The following are the details available at the end of 31st March, 2007 with
regard to the products:
Product

TV Sets
Washing
Machine
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Nos.
Purchased

Nos.
Sold
under CPS

Nos. sold
under
HPS

Cost per
unit

No. of
No. of
installme installme
nts due
nts
during the
received
year during the
year

90

20

60

16,000

1,080

70

20

40

12,000

840

1,000
800
Cont.

Question No.1 cont

The following were the expenses during the year
Particulars
Rent
Salaries
Commission to Salesman
Office Expenses

1,20,000
1,44,000
12,000
1,20,000

From the above information , you are required to prepare:

(a) Hire Purchase Trading Account, and
(b) Trading and Profit & Loss A/c
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Solution No.1
H.P. Trading A/c
To Op. HP Stock
To Goods sent on H.P.

- By Stock Res. (Op.)

14,40,000 By H.P. Sales

1710000

To Stock reserve

4,62,000 By H.P. Stock

9,90,000

To G. P. c/d

7,98,000 By Repossessed Stock

27,00,000

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27,00,000

Solution 1 Cont..
General Trading A/c
To Opening Stock

-- By Sales
TV

To Purchases (Total)
TV

90x16,000

Wash

70X12,000

To GP c/d

14,40,000 Wash

20x15000 3,00,000

8,40,000 By Goods sent on H.P.

7,00,000
14,40,000

140,000 By Closing Stock

24,20,000

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20x2000 4,00,000

TV

10x16,000 160000

Wash

10x12,000 120000

2,80,000
24,20,000

Solution 1 Cont..
Profit /Loss A/c
To Rent

1,20,000 By G.P. B/d

To Salaries

1,44,000 HPS

7,98,000

12,000 CPS

1,40,000

To Commission
To Office Exp.

1,20,000

Net Profit c/d

5,42,000
9.38,000

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9,38,000

Solution 1 Cont..
Working Notes :- (1) Details of the amount of installments
TV

Washing Machine

Cost
+25%

16,000
4,000

12,000
3,000

Case Price
+50 %

20,000
10,000

15,000
7,500

H.P. Price

30,000

22,500

30
1,000

30
750

No. of Installments
Amount of case in

Working Notes :- (2) Calculation of the cost of goods sent on H. P.

Number of units sent /sold
(x) Cpu

TV

Washing Machine

60
16,000

40
12000

9,60,000

4,80,000

14,40,000
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Solution 1 Cont..
Working Notes :- (3) Calculation of the H. P. Sales
(+) Installments received
No.
Amount

TV

Washing Machine

1000
1000

800
750

10,00,000

6,00,000

80
1000

40
750

80,000

30,000

10,80,000

6,30,000

(+) Installments to be
received
No.
Amount
Total

17,10,000

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Solution 1 Cont..
Working Notes :- (4) Calculation of HP Stock

Number of units sent

(x)HP Price
H.P. Price of goods sent
(-) HP Sales
(Due in current year)

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TV

Washing Machine

60
30,000

40
22,500

18,00,000
1080000

9,00,000
6,30,000

7,20,000

2,70,000

9,90,000

(5) Calculation of Stock Reserve

T. V.
Cost + Total Profit = H.P. Price
16,000+ x = 30,000
Profit = 14,000
HP Stock
7,20,000
?
30,000
14,000 =
3,36,000
Washing Machine
Cost + Total Profit = H.P. Price
12,000+ x = 22,500
Profit = 10,500
HP Stock
22,500
10,500
2,70,000
?
?
=
1,26,000
Total : 1,26,000 + 3,36,000 = 4,62,000
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Lesson Summary

Steps to prepare HP Trading A/c

Cricket Khelo You Know What ?
Accounting Entries
Questions and Solutions

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Thank you

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