Recording Date: May 24, 2013

Hire Purchase and

Installment Sale Transactions
Part 1
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
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expressed herein may not be taken to necessarily represent the views
of the Council or any of its committees

Important Notes

This e-Lecture was Recorded on:

May 24, 2013

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Due to changes in law, there is

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Hence, students are advised to

refer to the Study Material
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Learning Objectives
(1) Understand the meaning of Hire
Purchase
(2) Usefulness in Practical Life
(3) Understand the various terms used
(4) Understand the meaning of
Repossession
(5) To Lay a foundation of accounting
treatment

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Hire Purchase Meaning

It is one of
System of
Sales

Make Down
Payment

Get The
Delivery of
Assets

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Meaning Continued

Balance payment over a

period of time in form of :
Installments

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Terms
Cash Price
Original Selling
Price
Excluding
Interest

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Down Payment
Down payment

Spot payment
To get the
delivery

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Interest

Interest
Charges
For
deferred
payments

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Installments

Periodical Payment Period of Time

Installment = Principal + Interest

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HP Price
HP Price

Down
Payment + All
Installments
Cash Price +
Total Interest

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Continued

Repossession
Vendor
takes the
product back
Due to non
payment of
installments

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Types of Repossession

Types of Repossession
Complete
/ Total
Partial

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Types of Questions
Types of Questions

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Recording
Stage

Ascertainment
of Profit

Journal &
Ledger

Final Accounts

Recording Stage
Recording Stage
Prepare
Payment
Schedule
Mainly to find
out INTEREST
for each
Installment

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Question No. 1
From the following particulars, calculate interest payable in each
year by hire purchase customer.

(1) Cash Price

(2) Down Payment
(3) Installments
(4) Rate of Interest

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1,49,000
40,000
40,000 /
each 3 annual installments
5% p.a.

Answer
1

Answer 1

Payment Schedule

Cash Price

(-) Down Payment

1,49,000
40,000

Balance

1,09,000

First Installment
40,000
(-) Int.
5,450
34,550
Balance
74,450
Second Installment
40,000
36,277
(-) Int.
3,723
38,173
Balance
Last Installment
40,000
(-) Cash Price 38,173
Interest
1,827 38,173
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Installments
Principle

Interest

40,000

34,550

5,450

36,277

3,723

38,173

1827

1,49,000

11,000

Entries Recording Stage

Books of Hire Purchaser
Total Assets Method

(1) For
Agreement

Assets A/c . Dr. (Cash

Price)
To Vendors A/c

(2) For Down

Payment

Vendors A/c Dr.

To Cash / Bank A/c

(3) For
Installment Due
Interest Part

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Interest A/c . Dr.

To Vendors A/c

Contd..

Entries -Continued

(4) For Installment

Paid
P+I

Vendors A/c .. Dr.

To Cash / Bank A/c

(5) For
Depreciation A/c . Dr.
Depreciation
To Asset A/c
% on Cash Price

(6) For Transfer

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Profit &Loss A/c . Dr.

To Interest A/c

To Depreciation A/c

Entries Recording Stage

Books of Hire Purchaser
Interest Suspense Method
All other entries will be same, except for the 1st and 3rd entry will be different as
compared to total asset method.

For Agreement :
Asset A/c . Dr. (Cash Price)

Interest Suspense A/c ... Dr.(Total Interest)

To Vendors A/c

(H. P. Price)

(3) For Installment due (Interest Part)

Interest A/c .. Dr.
To Interest Suspense A/c

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Entries Recording Stage

Books of Vendor
Credit Sales Method
(1) For
Agreement

Hire Purchaser A/c. Dr.

To Sales A/c

(2) For Down

Payment

Cash / Bank A/c Dr.

To Hire Purchaser A/c

(3) For
Installment Due
Interest Part

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Hire Purchasers A/c . Dr.

To Interest A/c

Entries Conti..
(4) For Installment
Received
P+I

Cash /Bank A/c .. Dr.

To Hire Purchaser A/c

(5) For
Depreciation

No Entry

(6) For
Transfer
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(A) Interest A/c . Dr.

To Profit & Loss A/c

(B) Sales A/c.. Dr.

To Trading A/c

Entries Recording Stage

Books of Vendor Interest :Suspense
Method
All other entries will be same, except for the 1st and 3rd entry will be different as compared to
credit Sales method.

For Agreement :
Hire Purchaser A/c . Dr. (H.P Price)

To Sales A/c

(Cash Price)

To Interest Suspense A/c (Total Interest)

(3) For Installment due (Interest Part)

Interest Suspense A/c .. Dr.
To Interest A/c

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Lesson Summary
HP is a system of sales,
where pay some money
now and remaining in the
form of instalment

Questions of all types

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Cash
Price
No
Interest

HP
Price
Always
Interest

Down
Paymen
t No
Interest

Installm
ents
Always
Interest

Terms: Cash Price

Down Payment
Interest
Instalments
HP Price
Repossession

Types of Questions
1) Recording Stage
Journal & Ledger

Thank you

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