undefined | unit 5 hire purchase

CFA

UNIT 5

Hire purchase

Q1) Based on particulars given below calculate Interest under the hire purchase system

(a) X & Co.—purchaser Y & Co.-Seller Date of purchase—Jan. 1,1999

cash price—Rs.74,500.

Installments Rs.20,000 on signing of the agreement. Rest in three instalments of Rs.20,000 each. Rate of Interest—5%. Depreciation 10% on the diminishing Balance.

(b) All particulars as above except that the rate of interest is notgiven.

A1)

(a) Calculation of Interest
		Rs.
Jan.1, 1999	Cash Price	74,500
	Less-Cash down	20,000
	Balance Due	54,500
	Interest @ 5% for 1999	2,725
Dec.31, 1999	Total	57,225
	Amount paid	20,000
Jan.1, 2000	Balance Due	37,225
	Interest for 2000 @ 5%	1,861
Dec.31, 2000	Total	39,086
	Amount paid	20,000
Jan.1,2001	Balance due 2001	19,086
	Interest for (balancing figure) 2001	914
Jan.1,2002	Amount paid	20,000

(b) Calculation of interest when the rate of interest is not given:

Hire Purchase Price				80,000
Cash Price				74,500
Total interest				5,500

Year	Amount Outstanding	Ratio	Interest	Rs.
1	60,000	3	3/6 x 5,500	2,750
2	40,000	2	2/6 x 5,500	1,833
3	20,000	1	1/6 x 5,500	917

Instalment	Amount due at the end of the year (after payment of Installment)	Instalment paid	Total amount due at the end of the Year (before payment of instalment)		Interest @ 1/21	Principal due in the beginning
	Rs.	Rs.		Rs.	Rs.	Rs.
3	Nil	20,000		20,000	952	19,408
2	19,048	20,000		39,048	1,859	37,189
1	37,189	20,000		57,189	2,723	54,466
					5,534

Cash Price: 54,466 + cash down, Rs.20,000 or Rs.74,466.

Q2) 1st January, 2000 Mr. A purchases from Mr. B machinery whose cash price is Rs. 15,000; Rs. 5,000 is to be paid down, that is on signing of the contract, and Rs. 4,000 is to be paid at the end of each year for 3 years. Rate of interest is 10% p.a. Prepare B’s account in the books of Mr. A

A2)

A’s Books

Dr.			B’s Account		Cr.
		Rs.			Rs.
2000			2000
Jan.1	To Cash	5,000	Jan.1	By Machinery A/c	15,000
Dec.31	To Cash	4,000	Dec.31	By Interest A/c	1,000
’’	To balance c/d	7,000		(10% on Rs. 10,000)
		16,000			16,000
2001			2001
Dec.31	To Cash	4,000	Jan.1	By Balance b/d	7,000
	To Balance c/d	3,700	Dec.31	By Interest A/c
				(10% on Rs. 7,000)	700
		7,700			7,700
2002			2002
Dec.31	To Cash	4,000	Jan.1	By Balance b/d	3,700
			Dec.31	By Interest A/c*	300
		4,000			4,000

Q3) Based on particulars given below calculate Interest under the hire purchase system

X & Co.—purchaser Y & Co.-Seller Date of purchase—Jan. 1,1999, Cash price—Rs. 74,500.

Installments Rs. 20,000 on signing of the agreement. Rest in three instalments of Rs. 20,000 each. Rate of Interest—5%. Depreciation 10% on the diminishing Balance.

A3)

Calculation of Interest
		Rs.
Jan.1, 1999	Cash Price	74,500
	Less-Cash down	20,000
	Balance Due	54,500
	Interest @ 5% for 1999	2,725
Dec.31, 1999	Total	57,225
	Amount paid	20,000
Jan.1, 2000	Balance Due	37,225
	Interest for 2000 @ 5%	1,861
Dec.31, 2000	Total	39,086
	Amount paid	20,000
Jan.1,2001	Balance due 2001	19,086
	Interest for (balancing figure) 2001	914
Jan.1,2002	Amount paid	20,000

Q4) Based on particulars given below calculate Interest under the hire purchase system

X & Co.—purchaser Y & Co.-Seller Date of purchase—Jan. 1,1999, Cash price—Rs. 74,500.

Installments Rs. 20,000 on signing of the agreement. Rest in three instalments of Rs. 20,000 each. Depreciation 10% on the diminishing Balance.

A4)

Calculation of interest when the rate of interest is not given:

Hire Purchase Price				80,000
Cash Price				74,500
Total interest				5,500

Year	Amount Outstanding	Ratio	Interest	Rs.
1	60,000	3	3/6 x 5,500	2,750
2	40,000	2	2/6 x 5,500	1,833
3	20,000	1	1/6 x 5,500	917

Q5) A fire occurred in the business premises of Rajesh Traders on 15th October, 2010. from the following particulars, ascertain the loss of stock and prepare a claim for insurance.

Stock on 1-1-2009 Rs.15,300

Purchases from 1-1-2009 to 31-12-2009 Rs.61,000

Sales from 1-1-2009 to 31-12-2009 Rs.90,000

Stock on 31-12-2009 Rs.13,500

Purchases from 1-1-2010 to 14-10-2010 Rs.73,500

Sales from 1-1-2010 to 14-10-2010 Rs.75,000

The stock were always valued at 90% of cost. The stock saved was worth Rs.9,000. The amount of the policy was Rs.31,500, there was an average clause in the policy.

A5)

trading account
particulars	amount	particulars	amount
To opening stock	17,000	By sales	90,000
To purchase	61,000	By closing stock	15,000
To Gross profit	27,000
	1,05,000		1,05,000

Memorandum Trading Account

for the year ended 15-10-2010

Dr. Cr.

Particulars	Amount	Particulars	Amount
To opening stock To Purchase To Gross Profit (75,000 × 30 / 100)	15,000 73,500 22,500	By Sales By closing stock (Stock on the date of fire)	75,000 36,000
	1,11,000		1,11,000

Working Notes:

(1) Calculation of Stock:

Stock is always valued at 90% of cost

(A) Opening Stock = Rs.15,300 – (90%)

=15,300× 10/90

= 1,700 – (10%)

= 15,300 + 1,700 = 17,000

Opening Stock = Rs.17,000

(b) Closing Stock – Rs.13,500 – (90%)

13,500 ×10/90

= 1,500

13,500 + 1,500 = 15,000

Closing Stock = Rs.15,000.

(2) Calculation of Gross Profit Rate:

(Take the values of previous year i.e. Trading Account)

27,000/90,000 × 100

= 30%

Gross Profit Rate = 30%

(3) Statement of Claim:

Estimated stock on the date of fire = 36,000

Less: Stock saved = 9,000

Value of stock destroyed by fire = Rs.27,000

(4) Calculation of Average Clause:

(As there is policy value given so we have to calculate average clause)

Average Clause =

Value of Policy × Value of stock destroyed by fire

Value of stock on the date of fire

31,500/ 36,000 × 27,000

= 23,625

Average Clause = Rs.23,625

Q6) A fire occurred on 15th December, 2011 in the premises of D Co. Ltd. From the following figures, calculate the amount of claim to be lodged with the insurance company for loss of stock:

Rs.

Stock at cost as on 1st April, 2010 2,00,000

Stock at cost as on 1st April, 2012 3,00,000

Purchase for the year ended 31st March, 2011 4,00,000

Purchase from 1st April, 2011 to 15th December, 2011 8,80,000

Sales for the year ended 31st March, 2011 6,00,000

Sales from 1st April, 2011 to 15th December, 2011 10,50,000

During the accounting year 2011-2012, cost of purchase rose by 10% above the previous year’s levels while selling prices went up by 5%

The value of stock salvaged was Rs. 20,000

A6)

Trading Account for the year ended 31st March, 2011

Dr. Cr.

To Stock as on 1st April, 2010 To Purchase To Gross Profit (balancing Figure)	Rs 2,00,000 4,00,000 3,00,000	By Sales By Stock as on 31st March, 2011	Rs 6,00,000 3,00,000
	9,00,000		9,00,000

Rate of gross profit = 3,00,000 / 6,00,000 × 100 = 50%

Memorandum Trading Account

for the period from 1st April, 2011 to 15th December, 2011

Dr. Cr.

Particulars	Actuals	At last year’s rates	Particulars	Actual	At last year’s rates
To Stock as on 1st April, 2011 To Purchase To Gross Profit (at last year’s rates = Rs. 10,00,000 × 50/100) (Actual, balancing figure)	Rs 3,00,000 8,80,000 5,30,000	Rs 3,00,000 8,00,000 5,00,000	By Sales By Stock on 15th Dec. 2011 (At last year’s rates -balancing figure) (Actual -on FIFO basis Rs.6,00,000 × 110 × 100)	Rs 10,50,000 6,60,000	Rs 10,00,000 6,00,000
	17,10,000	16,00,000		17,10,000	16,00,000

Rs.

Value of closing Stock on 31st December, 2011 at current rates 6,60,000

Less: Value of goods salvaged 20,000

Amount of the claim to be lodged 6,40,000

Q7) On 15th June 2015, the premises and stock of a firm was destroyed by fire but the accounting records were saved from which the following particulars are available:

Stock on 1.1.2014 73,500

Stock on 31.12.2014 81,900

Purchases for the year 2014 3,98,000

Sales for the year 2014 4,87,000

Purchases from 1.1.2015 to 15.6.2015 1,62,000

Sales from 1.1.2015 to 15.6.2015 2,31,200

The stock salvaged was 5,300. Show the amount of claim.

A7)

Step 1: Preparation of Last Year Trading Account

trading account for the year ending 31st dec 2014
particulars	amount	particulars	amount
To opening stock	73,500	By sales	487,000
To purchase	398,000	By closing stock	81,900
To Gross profit	97,400
	568,900		568,900

Step 2: Calculation of Rate of Gross Profit on Sales

Rate of G/P = Net Sales/Gross Profit × 100 = 4,87,000/97,400 × 100 = 20%

Step 3: Preparation of Memorandum Trading Account

Memorandum trading account
particulars	amount	particulars	amount
To opening stock	81,900	By sales	231,200
To purchase	162,000	By closing stock	58,940
To Gross profit	46,240
	290,140		290,140

Step 4: Calculation of Actual Amount of Loss

particulars	amount
Stock on the date of fire	58940
less: salvaged stock	5300
Actual amount of loss	53640

Step 5: Calculation of Amount of Claim

The problem does not provide any information about the policy amount. Hence, the amount of claim will be the same as actual amount of loss.

The amount of claim = 53,640

Q8) A fire broke out in the warehouse of Merchantile Traders Ltd. on 30th Sep., 15. The company desires to file a claim with the insurance company for loss of stock. From the following information prepare a statement showing the amount of claim. The last account of company were prepared on 31.12.14.

Stock on 31.12.14 1,20,000

Sundry debtors on 31.12.14 3,20,000

Sundry debtors on 30.9.15 2,40,000

Cash received from debtors 11,52,000

Purchases from 1.1.15 to 30.9.15 10,00,000

Rate of Gross Profit on sales 25%

A8)

Total debtors account
particulars	amount	particulars	amount
To opening balance b/d	320,000	By cash received	1,152,000
To credit sales	1,072,000	By closing balance c/d	240,000

	1,392,000		1,392,000

Memorandum trading account
particulars	amount	particulars	amount
To opening stock	120,000	By sales	1,072,000
To purchase	1,000,000	By closing stock	316,000
To Gross profit	268,000
	1,388,000		1,388,000
Statement of claim
particulars	amount
Closing stock	316000
less: salvaged	-
Amount of claim	316000

Q9) Om Ltd. purchased a machine on hire purchase basis from Kumar Machinery Co. Ltd. on

the following terms:

Cash price Rs. 80,000

Down payment at the time of signing the agreement on 1.1.2011 Rs. 21,622.

5 annual instalments of Rs. 15,400, the first to commence at the end of twelve months from the date of down payment.

Rate of interest is 10% p.a.

You are required to calculate the total interest and interest included in cash instalment.

A9)

Calculation of interest

	Total (Rs.)	Interest in each instalment (1)	Cash price in each instalment (2)
Cash Price Less: Down Payment Balance due after down payment Interest/Cash Price of 1st instalment Less: Cash price of 1st instalment Balance due after 1st instalment Interest/cash price of 2nd instalment Less: Cash price of 2nd instalment Balance due after 2nd instalment Interest/Cash price of 3rd instalment Less: Cash price of 3rd instalment Balance due after 3rd instalment Interest/Cash price of 4th instalment Less: Cash price of 4th instalment Balance due after 4th instalment Interest/Cash price of 5th instalment Less: Cash price of 5th instalment Total	80,000 (21,622) 58,378 - (9,562) 48,816 - (10,518) 38,298 - (11,570) 26,728 - (12,728) 14,000 - (14,000) Nil	Nil Rs. 58,378 x10/100 = Rs. 5,838 Rs. 48,816 x 10/100 = Rs. 4,882 Rs. 38,298x10/100 = Rs. 3,830 Rs. 26,728 x10/100 = Rs. 2,672 Rs. 14,000 x10/100 =Rs. 1,400 Rs. 18,622	Rs. 21,622 Rs. 15,400 – Rs. 5,838 = Rs. 9,562 Rs. 15,400 - Rs. 4,882 = Rs. 10,518 Rs. 15,400 - Rs. 3,830 = Rs. 11,570 Rs. 15,400 - Rs. 2,672 = Rs. 12,728 Rs. 15400 – Rs. 1,400 = 14,000 Rs. 80,000

Total interest can also be calculated as follow:

(Down payment + instalments) – Cash Price = Rs. [21,622+(15400 x 5)] – Rs. 80,000 = Rs. 18,622

Q10) 1st January, 2000 Mr. A purchases from Mr. B machinery whose cash price is Rs. 15,000; Rs. 5,000 is to be paid down, that is on signing of the contract, and Rs. 4,000 is to be paid at the end of each year for 3 years. Rate of interest is 10% p.a. Prepare B’s account in the books of Mr. A

A10)

A’s Books

Dr.			B’s Account		Cr.
		Rs.			Rs.
2000			2000
Jan.1	To Cash	5,000	Jan.1	By Machinery A/c	15,000
Dec.31	To Cash	4,000	Dec.31	By Interest A/c	1,000
’’	To balance c/d	7,000		(10% on Rs. 10,000)
		16,000			16,000
2001			2001
Dec.31	To Cash	4,000	Jan.1	By Balance b/d	7,000
	To Balance c/d	3,700	Dec.31	By Interest A/c
				(10% on Rs. 7,000)	700
		7,700			7,700
2002			2002
Dec.31	To Cash	4,000	Jan.1	By Balance b/d	3,700
			Dec.31	By Interest A/c*	300
		4,000			4,000

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