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Unit-III

Hire Purchase System

Question Bank

Q1) (Cash Price, Rate of Interest and Amount of Installments are given)

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.

A1)

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

Q2) (Cash Price and Amount of Installments are given; Rate of Interest is not given)

Happy Valley Florists Ltd. acquired a delivery van on hire purchase on 01.04.2011 from Ganesh Enterprises. The terms were as follows:

Particulars	Amount (Rs.)
Hire Purchase Price	180,000
Down Payment	30,000
1st installment payable after 1 year	50,000
2nd installment after 2 years	50,000
3rd installment after 3 years	30,000
4th installment after 4 years	20,000

Cash price of van Rs. 1,50,000. You are required to calculate Total Interest and Interest included in each instalment.

A2) Calculation of total Interest and Interest included in each installment Hire Purchase Price (HPP) = Down Payment + instalments = 30,000 + 50,000 + 50,000 + 30,000 + 20,000 = 1,80,000

Total Interest = 1,80,000 – 1,50,000 = 30,000

Computation of IRR (considering two guessed rates of 6% and 12%)

Year	Cash Flow	DF @6%	PV	DF @12%	PV
0	30,000	1.00	30,000	1.00	30,000
1	50,000	0.94	47,000	0.89	44,500
2	50,000	0.89	44,500	0.80	40,000
3	30,000	0.84	25,200	0.71	21,300
4	20,000	0.79	15,800	0.64	12,800
		NPV	1,62,500	NPV	1,48,600

Interest rate implicit on lease is computed below by interpolation:

Interest rate implicit on lease= 6% + 1,62,500-1,50,000 x (12-6) = 11.39%

1,62,500-1,48,600

Thus, repayment schedule and interest would be as under:

Installment no.	Principal at beginning	Interest included in each installment	Gross amount	Installment	Principal at end
Cash down	1,50,000		1,50,000	30,000	1,20,000
1	1,20,000	13,668	1,33,668	50,000	83,668
2	83,668	9,530	93,198	50,000	43,198
3	43,198	4,920	48,118	30,000	18,118
4	18,118	2,064	20,182	20,000	182*
		30,182*
* the difference is on account of approximations.

Q3) On January 1, 2011 HP M/s acquired a Pick-up Van on hire purchase from FM M/s. The

terms of the contract were as follows:

(a) The cash price of the van was Rs. 1,00,000.

(b) Rs. 40,000 were to be paid on signing of the contract.

(d) Interest chargeable on the outstanding balance was 6% p.a.

(e) Depreciation at 10% p.a. is to be written-off using the straight-line method.

You are required to:

(a) Give Journal Entries and show the relevant accounts in the books of HP M/s from January 1, 2011 to December 31, 2013; and

(b) Show the relevant items in the Balance Sheet of the purchaser as on December 31, 2011 to 2013.

A3)

Journal Entries in the books of HP M/s

Date	Particulars		Dr.	Cr.
2011			Rs.	Rs.
Jan. 31	Pick-up Van A/c To FM M/S A/c (Being the purchase of a pick-up van on hire purchase from FM M/s)	Dr.	1,00,000
				1,00,000
“	FM M/S A/c To Bank A/c (Being the amount paid on signing the H.P. contract)	Dr.	40,000
				40,000
Dec. 31	Interest A/c To FM M/s A/c (Being the interest payable @ 6% on Rs. 60,000)	Dr.	3,600
				3,600
“	FM M/s A/c (Rs. 20,000+Rs. 3,600) To Bank A/c (Being the payment of 1st instalment along with interest)	Dr.	23,600
				23,600
“	Depreciation A/c To Pick-up Van A/c (Being the depreciation charged @ 10% p.a. on Rs. 1,00,000)	Dr.	10,000
				10,000

“	Profit & Loss A/c To Depreciation A/c To Interest A/c (Being the depreciation and interest transferred to Profit and Loss Account)	Dr.	13,600
				10,000 3,600
2012 Dec. 31	Interest A/c To FM M/s A/c (Being the interest payable @ 6% on Rs. 40,000)	Dr.	2,400	2,400
“	FM M/s A/c (Rs. 20,000 + Rs. 2,400) To Bank A/c (Being the payment of 2nd instalment along with interest)	Dr.	22,400
				22,400
“	Depreciation A/c To Pick-up Van A/c (Being the depreciation charged @ 10% p.a.)	Dr.	10,000
				10,000
“	Profit & Loss A/c To Depreciation A/c To Interest A/c (Being the depreciation and interest charged to Profit and Loss Account)	Dr.	12,400
				10,000 2,400
2013 Dec. 31	Interest A/c To FM M/s A/c (Being the interest payable @ 6% on Rs. 20,000)	Dr.	1,200	1,200
“	FM M/s A/c (Rs. 20,000 + Rs. 1,200) To Bank A/c (Being the payment of final instalment along with interest)	Dr.	21,200
				21,200
“	Depreciation A/c To Pick-up Van A/c (Being the depreciation charged @ 10% p.a. on Rs. 1,00,000)	Dr.	10,000
				10,000
“	Profit & Loss A/c To Depreciation A/c To Interest A/c (Being the interest and depreciation charged to Profit and Loss Account)	Dr.	11,200
				10,000 1,200

Ledgers in the books of HP M/s

Pick-up Van Account

Date	Particulars	Rs.	Date	Particulars	Rs.
1.1.2011	To FM M/s A/c	1,00,000	31.12.2011	By Depreciation A/c	10,000
			31.12.2011	By Balance c/d	90,000
		1,00,000			1,00,000
1.1.2012	To Balance b/d	90,000	31.12.2012	By Depreciation A/c	10,000
			31.12.2012	By Balance c/d	80,000
		90,000			90,000
1.1.2013	To Balance b/d	80,000	31.12.2013	By Depreciation A/c	10,000
			31.12.2013	By Balance c/d	70,000
		80,000			80,000

FM M/s Account

Date	Particulars	Rs.	Date	Particulars	Rs.
1.1.2011	To Bank A/c	40,000	1.1.2011	By Pick-up Van A/c	1,00,000
31.12.2011	To Bank A/c	23,600	31.12.2011	By Interest c/d	3,600
31.12.2011	To Balance c/d	40,000
		1,03,600			1,03,600
31.12.2012	To Bank A/c	22,400	1.1.2012	By Balance b/d	40,000
31.12.2012	To Balance c/d	20,000	31.12.2012	By Interest A/c	2,400
		42,400			42,400
31.12.2013	To Bank A/c	21,200	1.1.2013	By Balance b/d	20,000
			31.12.2013	By Interest A/c	1,200
		21,200			21,200

Depreciation Account

Date	Particulars	Rs.	Date	Particulars	Rs.
31.12.2011	To Pick-up Van A/c	10,000	31.12.2011	By Profit & Loss A/c	10,000
31.12.2012	To Pick-up Van A/c	10,000	31.12.2012	By Profit & Loss A/c	10,000
31.12.2013	To Pick-up Van A/c	10,000	31.12.2013	By Profit & Loss A/c	10,000

Interest Account

Date	Particulars	Rs.	Date	Particulars	Rs.
31.12.2011	To FM M/s A/c	3,600	31.12.2011	By Profit & Loss A/c	3,600
31.12.2012	To FM M/s A/c	2,400	31.12.2012	By Profit & Loss A/c	2,400
31.12.2013	To FM M/s A/c	1,200	31.12.2013	By Profit & Loss A/c	1,200

Balance Sheet of HP M/s as at 31st December, 2011

Liabilities	Rs.	Assets	Rs.
FM M/s	40,000	Pick-up Van	90,000

Balance Sheet of HP M/s as at 31st December, 2012

Liabilities	Rs.	Assets	Rs.
FM M/s	20,000	Pick-up Van	80,000

Balance Sheet of HP M/s as at 31st December, 2013

Liabilities	Rs.	Assets	Rs.
		Pick-up Van	70,000

Q4) 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

A4)

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

Q5) 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.

A5)

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

Q6) 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.

A6)

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

Q7) Based on particulars given below calculate Interest under the hire purchase system

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

A7)

Calculation of cash price, rate of interest being given:

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.

Q8) Y & Co. sold machinery whose cash price is Rs. 74,500. to X and Co., on hire purchase basis on 1st January, 2000. Payment was to be made as Rs. 20,000 down and Rs. 20,000 every year for three years. Rate of interest was 5% & Co. charged depreciation @ 10% p.a. on the diminishing balance. Give ledger accounts in the books of Y & Co.

A8)

Ledger of Y & Co.
Dr.			X & Co.		Cr.
		Rs.			Rs.
2000			2000
Jan.1	To Sales	74,500	Jan.1	By Cash	20,000
Dec.31	To Interest A/c		Dec.31	By Cash	20,000
	(5% on Rs. 54,500)	2,725		By Balance c/d	37,225
		77,225			77,225
2001			2001
Jan.1	To Balance b/d	37,225	Dec.31	By Cash	20,000
Dec.31	To Interest A/c	1,861		By Balance c/d	19,086
		39,086			39,086
2002			2002
Jan.1	To Balance b/d	19,086	Dec.31	By Cash	20,000
Dec.31	To Interest A/c	914
		20,000			20,000

Dr.	Sales Account			Cr.
		2000
		Jan. 1	By X & Co.	Rs. 15,000.
Interest Account
Dr.				Cr.
2000		2000
Dec.31 to P & L A/c	2,725	Dec.31	By X & Co.	2,725
2001		2001
Dec.31 to P & L A/c	1,861	Dec.31	By X & Co.	1,861
2002		2002
Dec.31 to P & L A/c	914	Dec.31	By X & Co.	914

Q9) Y & Co. sold machinery whose cash price is Rs. 74,500. to X and Co., on hire purchase basis on 1st January, 2000. Payment was to be made as Rs. 20,000 down and Rs. 20,000 every year for three years. Rate of interest was 5% & Co. charged depreciation @ 10% p.a. on the diminishing balance. Give Journal Entries & ledger accounts in the books of X & Co.

A9)

Journal of X & Co.

								Debit (Rs)		Credit (Rs)
2000
Jan.1		Machinery Account					Dr.	20,000
		To Y & Co.						20,000
		(Amount due to Y & Co. as down payment for purchase of machinery on hire purchase basis.)

Jan.1		Y & Co.					Dr.	20,000
		To Bank Account						20,000
		(Payment made to Y & Co. down)

Dec.31		Machinery Account					Dr.	17,275
		Interest Account					Dr.	2,725
		To Y & Co.						20,000
		(The amount due to Y & Co. under the hire purchase Contract for interest (and debited as such) and the balance treated as payment for machinery)

Dec.31		Y & Co.					Dr.	20,000
		To Bank A/c						20,000
		(Payment made to Y & Co.)

Dec.31		Depreciation Account					Dr.	7,450
		To Machinery Account						7,450
		(Depreciation for 1st year-10% on Rs. 74,500)

Dec 31		Profit & Loss Account					Dr.	10,175
		To Interest Account						2,725
		To Depreciation Account						7,450
		(Being interest and depreciation transferred to P/L A/c)
2001
Dec.31		Machinery Account					Dr.	18,139
		Interest Account					Dr.	1,861
		To Y & Co.						20,000
		(Amount due to Y & Co. for interest the balance charged to Machinery A/c.)

Dec.31		Y & Co.					Dr.	20,000
		To Bank Account						20,000
		(Payment made to Y & Co.)

Dec. 31		Depreciation					Dr.	6,705
		To Machinery Account						6,705
		(Depreciation for the second year 10% on Rs. 67,050; i.e. Rs. 74,500 - Rs. 7,450).

Dec 31		Profit & Loss Account					Dr.	8,566
		To Interest Account						1,861
		To Depreciation Account						6,705
		(Being interest and depreciation transferred to P/L A/c)
2002
Dec.31		Machinery Account					Dr.	19,086
		Interest Account					Dr.	914
		To Y & Co.						20,000
		(Amount due to Y & Co. in respect of interest and the principal sum.)

Dec.31		Y & Co.					Dr.	20,000
		To Bank Account						20,000
		(Payment made to Y & Co.)

Dec.31		Depreciation Account					Dr.	6,035
		To Machinery Account						6,035
		(Depreciation @ 10% of the diminishing balance charged for the third years).

Dec 31		Profit & Loss Account					Dr.	6,949
		To Interest Account						914
		To Depreciation Account						6,035
		(Being interest and depreciation transferred to P/L A/c)
	Ledger Accounts
	Dr.			Machinery Account					Cr.
	2000			Rs.	2000				Rs.
	Jan.1		To Y & Co.	20,000	Dec.31	By Depreciation			7,450
	Dec.31		To Y & Co.		Dec.31	By Balance c/d			29,825
			(20,000—2,725)	17,275
				37,275					37,275
	2001				2001
	Jan.1		To balance b/d	29,825	Dec.31	By Depreciation A/c			6,705
	Dec.31		To Y & Co.		Dec.31	By Balance c/d			41,259
			(20,000—1,861)	18,139
				47,964					47,964
	2002				2002
	Jan.1		To Balance b/d	41,259	Dec.31	By Depreciation A/c			6,035
	Dec.31		To Y & Co.	19,086	Dec.31	By Balance c/d			54,310
				60,345					60,345
	2003
	Jan.1		To Balance b/d	54,310

Dr.		Interest Account			Cr.
2000		Rs.	2000		Rs.
Dec.31	To Y & Co.	2,725	Dec.31	By P & L A/c	2,725
2001			2001
Dec.31	To Y & Co.	1,861	Dec.31	By P & L A/c	1,861
2002			2002
Dec.31	To Y & Co.	914	Dec.31	By P & L A/c	914

Dr.			Y & Co.			Cr.
2000		Rs.		2000		Rs.
Jan.1	To Bank A/c	20,000	Jan.1	By Machinery A/c		20,000
Dec.31	To Bank A/c	20,000	Dec.31	By Sundries—
				Machinery	17,275
				Interest	2,725	20,000
		40,000			40,000
2001			2001
Dec.31	To Bank A/c	20,000	Dec.31	By Machinery A/c		18,139
				By Interest A/c	1,861
		20,000			20,000
2002			2002
Dec.31	To Bank A/c	20,000	Dec.31	By Machinery A/c		19,086
				By Interest A/c	914
		20,000			20,000

Depreciation Account

2000		Rs.	2000		Rs.
Dec.31	To Machinery A/c	7,450	Dec.31	By P & L A/c	7,450
2001		2001
Dec.31	To machinery A/c	6,705	Dec.31	By P & L A/c	6,705
2002		2002
Dec.31	To Machinery A/c	6,035	Dec.31	By P & L A/c	6,035

Q10) A purchased from B two machines of Rs.15,000. each on hire purchase system. The payment was to be made Rs.6,000 down and the remainder in three equal instalments of Rs.5,000 each together with interest. A writes off depreciation at 10% on written down value. A could not pay the second instalment. It was agreed that the vendor would leave one machine with the purchaser, adjusting the value of the other against due, treating the machines at 20% depreciation on W.D. value

Show machines A/c and B’s A/c in the books of A.

A10)

Machines A/c

Beginning of 1 Year	To b’s A/c	21,000	End of yr.	By Depreciation	2,100
				By Balance c/d	18,900
		21,000			21,000
Beginning			End of II yr.	By Depreciation	1,890
of II yr.	To Balance b/d	18,900	End of II yr.	By B’s A/c	6,720
			End of II yr.	By P & L A/c (Bal Fig.)	1,785
				By Bal. c/d	8,505
		18,900			18,900
			B’s A/c
		Rs.			Rs.
1 yr.	To Cash	6,000	End of I yr.	By Machine	21,000
End of I yr.	To Cash	5,750	End of I yr.	By Interest	750
	To Balance c/d	10,000
		21,750			21,750
End of II yr.	To Machine	6,720	Beginning of I yr.	By Balance c/d	10,000
	To Balance c/d	3,780	End of II yr.	By Interest	500
		10,500			10,500

Working Notes Value of which machine is taken over by B
	Rs.
Cost of one machine	10,500
Less 20% dep. for I year.	2,100
	8,400
Less 20% dep. for next year	1,680
	Rs. 6,720
W.D.V. of machines left with A
Cash price of one machine	Rs. 10,500
Less dep. for I year	1,050
	9,450
Less dep. for II year	945
	8,505

Q11) On 1st January 20XI, Ashok acquired furniture on the hire purchase system from Real Aids Ltd., agreeing to pay four semi-annual instalments of Rs.800, each commencing on 30th June 20XI. The cash price of the furniture was Rs.3,010 and interest of 5% per annum at half yearly rest was chargeable. On 30th September 20XI, Ashok expresses his inability to continue and Real Aids seized the property. It was agreed that Ashok would pay the due proportion of the instalment up to the date of seizure and also a further sum of Rs.200 towards depreciation. At the time of repossession, Real Aids valued the furniture at Rs.1,500. The company after incurring Rs.200 towards repairs of the furniture, sold the items for Rs.1,800 on 15th October 20XI. Prepare the Ledger accounts in the books of the Vendor and the Purchaser presuming that the purchaser charges depreciation @ 10% p.a.

A11)

:
Books of Ashok :
Dr.		Furniture Account			Cr.
Date	Particulars	Rs. P.	Date	Particulars	Rs. P.
01.01.XI	To Real Aids Ltd.	3,010.00	30.09.XI	By Depreciation A/c (10%	225.75
				on Rs.3,000 for 9 months)
				By Real aids Ltd.	1,713.82
				By Profit & Loss a/c (Loss)	1,070.43
		3,010.00			3,010.00

Dr.		Real Aids Ltd.’s Account			Cr.
Date	Particulars	Rs. P.	Date	Particulars	Rs. P.
30.06.XI	To Cash A/c	800.00	01.01.XI	By Furniture A/c	3,010.00
30.09.XI	To Cash A/c	600.00	30.06.XI	By Interest A/c	75.25
	(Rs. 400 + Rs.200)		30.09.XI	By Interest (on Rs.	28.57
				2,285.25 @ 5% p.a.)
30.09.XI	To Furniture A/c	1713.82
		3,113.82			3,113.82

Interest Account

Date	Particulars	Rs.P.	Date	Particulars	Rs.P.
30.06.XI	To Real Aids	75.25		By Profit & Loss A/c	103.82
30.09.XI	To Real Aids Ltd.	28.57
		103.82			103.82
Dr.	An Extract of Profit and Loss Account of Ashok				Cr.
Particulars		Rs. P.	Particulars		Rs.P.
To Interest		103.82
To Loss on seizure of goods		1070.43
To Depreciation on Furniture		225.75
		1,400.00

Books of Real Aids Ltd. :
Dr.		Ashok’s Account			Cr.
Date	Particulars	Rs. P.	Date	Particulars	Rs. P.
01.01.XI	To Hire Purchase	3,010.00	30.06.XI	By Bank A/c	800.00
	Sales A/c		30.06.XI	By Bank A/c	600.00
30.06.XI	To Interest A/c	75.25	30.09.XI	By Profit And Loss A/c (Loss	213.82
	(on Rs.3,010)			on valuation of goods
30.09.XI	To Interest A/c	28.57		repossessed)
	(on Rs.2,285.25)		30.09.XI	By H.P. Goods Repossessed	1,500.00
				A/c
		3,113.82			3,113.82

Dr.	Hire Purchase Goods Repossessed Account				Cr.
Date	Particulars	Rs. P.	Date	Particulars	Rs. P.
30.09.XI	To Ashok	1,500	15.10.XI	By Cash A/c (Sales)	1,800
30.09.XI	To Cash (Expenses)	200
15.10.XI	To Profit and Loss A/c	100
	(profit on sale of
	repossessed goods)	1,800			1,800

Dr. An Extract of Profit and Loss account of Real Aids Ltd. Cr.

Particulars	Rs. P.	Particulars	Rs. P.
To Loss on valuation of goods	213.82	By Interest on H.P. Sales	103.82
repossessed		By Hire Purchase Goods Repossessed A/c (Profit)	100.00

Q12) X purchased from Y three cars costing Rs.1,00,000 each on hire purchase system. Payment was to be made; Rs.60,000 down and balance in three equal instalments together with interest at 15% per annum. X provides depreciation at 20% per annum on diminishing balance method. X paid the first instalment at the end of the first year but could not pay the second instalment, Y took possession of all the three cards. He spent Rs.18,000. on repairs and sold them for Rs.1,50,000.

Show the necessary ledger account in the books of both the parties.

A12)

In the books of Hire Purchaser.

		1.	Cars Account
Date	Particulars	Rs.	Date	Particulars	Rs.
I yr.1.1	To Hire Vendor A/c	3,00,000	I yr.31.12	By Depreciation	60,000
				By balance c/d	2,40,000
		3,00,000	II yr.		3,00,000
II yr. 1.1	To Balance b/d	2,40,000	31.12	By Depreciation	48,000
				By Hire Vendor A/c	1,84,000
				By P & L A/c (Loss on sale)	8,000
		2,40,000			2,40,000

	2.	Hire Vendor Account
Date	Particulars	Rs.	Date	Particulars	Rs.
I yr.			I yr.
1.1	To Cash A/c	60,000	1.1	By Cars A/c	3,00,000
	To Cash A/c (80,000 + 36,000)	1,16,000	31.12	By Interest A/c	36,000
	To Balance c/d	1,60,000
		3,36,000			3,36,000

II yr.					II yr.
1.1	To Cars A/c		1,84,000	31.12	By Balance b/d	1,60,000
				31.12	By Interest A/c	24,000
			1,84,000			1,84,000
In the books of Hire Vendor
Hire Purchaser A
Date	Particulars	Rs.	Date	Particulars		Rs.
I yrs.1.1			I yr.
1.1	To Cars A/c	3,00,000	1.1	By Cash A/c		60,000
31.12.	To Interest A/c	36,000	31.12	By Cash A/c		1,16,000
				By Balance c/d		1,60,000
		3,36,000				3,36,000
II yr.			II. yr.
1.1	To Balance b/d	1,60,000	31.12	By Goods	Repossessed A/c	1,84,000
	To Interest	24,000
		1,84,000				1,84,000
		Goods	Repossessed Account
Date	Particulars	Rs.	Date	Particulars		Rs.
II yr.			II yr.
31.12	To Hire Purchase A/c 1,84,000		31.12	By Cash (Sale)		1,50,000
	To Cash (Repairs)	18,000		By Profit & Loss A/c (Loss)		52,000
		2,02,000				2,02,000

Q13) Kanpur Transport Ltd. purchased from Delhi Motors three trucks costing Rs.50,000 each on the hire purchase system. Payment was to be made Rs.30,000 down and the remainder in three equal instalments together with interest @ 9%.

Kanpur Transport Ltd. Wrote off depreciation @ 20% on the diminishing balance. It paid the instalment due at the end of the first year but could not pay the next. Delhi Motors agreed to leave one truck with the purchaser, adjusting the value of the other two trucks against the amounts due. The trucks were valued on the basis of 30% depreciation (diminishing value) annually. Show the necessary accounts in the books of Kanpur transport Ltd. for two years.

A13)

In the books of Kanpur Transport Ltd.

Trucks Account

Jan.1	To Hire Vendor A/c	1,50,000	Dec.31	By Depreciation A/c (P & L A/c)	30,000
			Dec.31	By Balance c/d	1,20,000
		1,50,000			1,50,000

Delhi Motors Ltd. Account

Date	Particulars	Rs.	Date	Particulars	Rs.
1st year			1st year
Jan.1	To Cash A/c	30,000	Jan.1	By Trucks A/c	1,50,000
Dec.31	To Cash A/c	50,800	Dec.31	By Interest A/c	10,800
	To balance c/d	80,000
		1,60,800			1,60,800
2st year			2st year
Dec.31	To Trucks A/c	49,000	Jan.1	By Balance b/d	80,000
	To Balance c/d		Dec.31	By Interest A/c	7,200
	(31,000 + 7,200)	38,200
		87,200			87,200
Working Notes:
1.	Revised price of 2 seized trucks:				Rs.
	Cash price 50,000 each for 2				1,00,000
	(–) Depreciation @ 30% for Ist year				30,000
					70,000
	(–) Depreciation for	2nd year			21,000
					49,000
2.	Balance outstanding for retained truck :				Rs.
	Cash price for all 3 trucks				1,50,000
	(–) Cash paid at the signing			Rs. 30,000
	instalment			40,000
	Revised price of 2 seized trucks			49,000	1,19,000
					31.000
3.	Depreciation of the retained truck:				Rs.
	Cash price				50,000
	(–) Depreciation for Ist year				10,000
	W.D.V.				40,000
	(–) Depreciation for 2nd year @ 20%				8,000
	Valued at the end of 2nd year				32,000

In the books of Kanpur Transport Ltd. - Second method based on Actual Payments.

Q14) Suri is having his Head office at Mumbai and Branch Office at Nasik. Prepare the branch Account in the books of the Head Office from the following transaction with the branch:

PARTICULARS	AMOUNT	PARTICULARS	AMOUNT
Opening Balance at Branch:		Amounts remitted to the Branch for:
- Petty Cash	1,000	- Petty Cash Expenses	4,000
- Stock	39,500	- Salary	12,000
- Debtors	21,000	- Rent and Taxes	3,500
Goods Supplied to Branch during the year	3,10,000	Closing balances ay Branch:
Amounts remitted by the branch		- Petty	950
- Cash Sales	1,13,200	- Debtors	53,000
- Realisation from Debtors	2,30,300	- Stock	26,500

A14)

IN THE BOOKS OF H.O.

Dr. NASIK BRANCH ACCOUNT. Cr.

PARTICULARS	AMOUNT	PARTICULARS	AMOUNT
To Balance b/d		By Bank (Remittance):
Branch petty cash	1,000	- Petty Cash Expenses	4,000
Branch Stock	39,500	- Salary	12,000
Branch Debtors	21,000	- Rent and Taxes	3,500
To Goods sent to Branch	3,10,000	Closing balance at Branch
To cash remitted for:		- Petty Cash	950
Petty Cash Expenses	4,000	- Debtors	53,000
Salary	12,000	- Stock	26,500
Rent	3,500
To General P&L (Bal Fig)	32,950
TOTAL	4,23,950	TOTAL	4,23,950

Q15) D of Delhi have a branch at Madras. Goods are sent by the Head Office at Invoice Price which is at the Profit of 25% on Cost Price. All the Expenses of the branch are paid by the Head Office. From the following particulars, prepare Branch Account in Head Office Books

BALANCES	OPENING	CLOSING
Stock at invoice	11,000	13,000
Debtors	1,700	2,000
Petty Cash	100	25
TOTAL	12,800	15,025

Goods sent to branch at invoice price Rs. 20,000.

Expenses made by head office: -Rent Rs.600, Wages Rs.200, Salaries Rs.900

Remittance made to Head Office: - Cash Sales Rs. 2,650, Cash collected from debtors Rs. 21,000

Goods Returned by Branch at Invoice Price Rs.400

A15)

IN THE BOOKS OF HEAD OFFICE

Dr. MADRAS BRANCH A/c. Cr.

PARTICULARS	AMOUNT	AMOUNT	PARTICULARS	AMOUNT	AMOUNT
To Balance b/d			By Stock Reserve A/c b/d(Load on OP. Stock 11,000 X 25/125)		2,200
Stock (IP)		11,000	By Bank
Debtors		1,700	Cash Sales	2,650
Petty Cash		100	Cash collected from Debtors	21,000	23,650
To Goods sent to Branch (IP)		20,000	By Goods sent to branch (Returns at IP)		400
To Bank (Expenses):			By Goods sent to branch (19,600 X 25/125; net Loading)		3,920
Rent	600		By Balance c/d
Wages	200		Stock (IP)	13,000
Salaries	900	1,700	Debtors	2,000
To Stock Reserve A/c c/d(Load on Cl. Stock 13,000 X 25/125)		2,600	Petty Cash	25	15,025
To Net Profit tfd to general P&L (Bal Fig)		8,095
TOTAL		45,195	TOTAL		45,195

Note: Goods are sent by Head Office at @ 25% on Cost Price.

So, Cost + Profit = Invoice Price

100 + 25 = 125

Profit charged by Head Office is 1/5 or 20% of Invoice Price.

Q16) One M.P. Head Office has a branch at Berhampur to which goods are invoiced at cost plus 20%. from the following particulars prepare the Branch Account in the Head Office Books:

PARTICULARS	AMOUNT
Goods sent to Branch at invoice Price	2,11,872
Total Sales	2,06,400
Cash Sales	1,10,400
Cash received from Branch Debtors	88,000
Branch Debtors at commencement	24,000
Branch Stock at commencement at Invoice price	7,680
Branch Stock at Close of the period at Invoice Price	13,440

A16)

IN THE BOOKS OF M.P. HEAD OFFICE

Dr. BERHAMPUR BRANCH ACCOUNT. Cr.

PARTICULARS	AMOUNT	AMOUNT	PARTICULARS	AMOUNT	AMOUNT
To Balance b/d			By Stock Reserve A/c b/d(Load on OP. Stock)		1,280
Stock (IP)		7,680	By Bank
Debtors		24,000	Cash Sales	1,10,400
To Goods sent to Branch (IP)		2,11,872	Cash collected from Debtors	88,000	1,98,400
To Stock Reserve A/c c/d(Load on Cl. Stock)		2,240	By Goods sent to branch (2,11,872 X 20/120; net Loading)		35,312
To Net Profit tfd to general P&L (Bal Fig)		34,640	By Balance c/d
			Stock (IP)	13,440
			Debtors	32,000	45,440



TOTAL		2,80,432	TOTAL		2,80,432

Working Note:

Dr. BERHAMPUR BRANCH DEBTORS ACCOUNT. Cr.

PARTICULARS	AMOUNT	PARTICULARS	AMOUNT
To Balance b/d	24,000	By Cash	88,000
To Credit Sales	96,000	By balance c/d (balancing figure)	32,000
TOTAL	1,20,000	TOTAL	1,20,000

(2)

Total Sales =2,06,400

Less: - Cash Sales =1,10,400

Credit Sales =96,000

(3)

Goods are sent by Head Office at @ 20% on Cost Price.

So, Cost + Profit = Invoice Price

100 + 20 = 120

Profit charged by Head Office is 1/6 of Invoice Price.

Q17) The Canada commercial company invoiced goods to its Jaipur Branch at cost. The head office paid all the branch expenses from its bank except petty cash expenses which were Paid by the branch. From the following details relating to the branch, prepare

(1): Branch Stock A/c

(2) Branch Debtors A/c

(3) Branch Expenses A/c

(4) Branch P&L A/c

PARTICULARS	AMOUNT	PARTICULARS	AMOUNT
Stock (Opening)	21,000	Discount to Customer	4,200
Debtors (Opening)	37,800	Bad Debts	1,800
Petty Cash(Opening)	600	Goods returned by customers to branch	1,500
Goods sent to H.O.	78,000	Salaries	18,600
Goods returned to H.O.	3,000	Rent	3,600
Cash Sales	52,500	Debtors(Closing)	29,400
Advertisement	2,400	Petty Cash (Closing)	300
Cash received from debtors	85,500	Credit Sales	85,200
Stock(Closing)	19,500
Allowances to Customer	600

A17)

Dr. BRANCH STOCK A/c. Cr.

PARTICULARS	AMOUNT	PARTICULARS	AMOUNT
To Balance b/d	21,000	By Branch Cash	52,500
To Goods sent to sent Branch	78,000	By Goods sent to Branch	3,000
To Branch Debtors	1,500	By Branch Debtors	85,200
To Branch P&L (Transfer)	59,700	By Balance c/d	19,500
TOTAL	1,60,200	TOTAL	1,60,200

Dr. BRANCH DEBTORS A/c. Cr.

PARTICULARS	AMOUNT	PARTICULARS	AMOUNT
To Balance b/d	37,800	By Branch Cash	85,500
To Branch Stock (Credit Sales)	85,200	By Branch expenses Bad Debts 1,800 Allowances 600 Discount 4,200	6,600
		By Branch Stock (Returns)	1,500
		By Balance c/d	29,400
TOTAL	1,23,000	TOTAL	1,23,000

Dr. BRANCH EXPENSES A/c. Cr.

PARTICULARS	AMOUNT	PARTICULARS	AMOUNT
To Branch Debtors	6,600	By Branch P&L	31,500
To Bank Advertisement 2,400 Salaries 18,600 Rent 3,600	24,600
To Petty Expenses (600-300)	300

TOTAL	31,500	TOTAL	31,500

Dr. BRANCH PROFIT & LOSS A/c. Cr.

PARTICULARS	AMOUNT	PARTICULARS	AMOUNT
To Branch Expenses	31,500	By Branch Stock	59,700
To General P&L (Bal Fig)	28,200
TOTAL	59,700	TOTAL	59,700

Q18) The following are the details of ‘Indore Branch’ for the year 2018

PARTICULARS	AMOUNT	PARTICULARS	AMOUNT
Opening stock	6,000	Salaries	2,000
Opening Petty Cash	500	Rent	1,500
Opening Debtors	8,000	Closing Stock	8,000
Goods sent to Branch	24,000	Cash sent to Branch	2,200
Goods returned by Branch	800	Discount Allowed	100
Remittance from Branch	33,500	Bad Debts	150
Returns from Debtors	2,000	Commission Paid	750
Collection from Debtors	34,000	Closing Petty Cash	450
Cash Sales	1,500	Closing Debtors	9,000

Prepare: (1) Branch Stock A/c (2) Branch Debtors A/c (3) Branch Expenses A/c

(4) Branch P&L A/c (5) Branch Cash (6) Goods sent to Branch A/c

A18)

Dr. BRANCH STOCK A/c. Cr.

PARTICULARS	AMOUNT	PARTICULARS	AMOUNT
To Balance b/d	6,000	By Branch Cash (Cash Sales)	1,500
To Goods sent to sent Branch	24,000	By Goods sent to Branch	800
To Branch Debtors(Return Inwards)	2,000	By Branch Debtors(Credit Sales)	37,250
To Branch P&L (Transfer)	15,550	By Balance c/d	8,000
TOTAL	47,550	TOTAL	47,550

Dr. BRANCH DEBTORS A/c. Cr.

PARTICULARS	AMOUNT	PARTICULARS	AMOUNT
To Balance b/d	8,000	By Branch Cash (Received from Debtors)	34,000
To Branch Stock (Credit Sales) (Bal Fig)	37,250	Branch expenses Bad Debts 150 Discount 100	250
		By Branch Stock (Returns)	2,000
		By Balance c/d	9,000
TOTAL	45,250	TOTAL	45,250

Dr. BRANCH CASH A/c. Cr.

PARTICULARS	AMOUNT	PARTICULARS	AMOUNT
To Balance (Petty Cash)	500	By Branch Expenses Salaries 2,000 Rent 1,500 Commission 750	4,250
To Bank (Remittance)	2,200	By Bank (Remittance from Branch)	33,500
To Branch stock (Cash Sales)	1,500	By Balance (Petty Cash)	450
To Branch Debtors (Received)	34,000

TOTAL	38,200	TOTAL	38,200

Dr. BRANCH EXPENSES A/c. Cr.

PARTICULARS	AMOUNT	PARTICULARS	AMOUNT
To Branch Debtors	6,600	By Branch P&L	31,500
To Bank Advertisement 2,400 Salaries 18,600 Rent 3,600	24,600
To Petty Expenses (600-300)	300

TOTAL	31,500	TOTAL	31,500

Dr. BRANCH EXPENSES A/c. Cr.

PARTICULARS	AMOUNT	PARTICULARS	AMOUNT
To Branch Debtors	250	By Branch P&L (Balance Transferred)	4,500
To Branch Cash	4,250


TOTAL	4,500	TOTAL	4,500

Dr. GOODS SENT TO BRANCH A/c. Cr.

PARTICULARS	AMOUNT	PARTICULARS	AMOUNT
To Branch Stock	800	By Branch Stock	24,000
To Purchase	23,200


TOTAL	24,000	TOTAL	24,000

Dr. BRANCH PROFIT & LOSS A/c. Cr.

PARTICULARS	AMOUNT	PARTICULARS	AMOUNT
To Branch Expenses	4,500	By Branch Stock (Gross Profit)	15,550
To General P&L (Bal Fig)	11,050
TOTAL	15,550	TOTAL	15,550

Q19) Mumbai Textile Mills Ltd. Has branch at Agra. Goods are invoiced to branch at cost plus 50%. Branch remits all cash received to the head office and all expenses are met by head office. From the following particulars, prepare the necessary accounts under the Stock and Debtors system to Show the Profit Earned at the Branch:

PARTICULARS	AMOUNT
Stock on the 1st April,2013 (Invoice Price)	93,000
Debtors on 1st April,2013	68,000
Goods Invoiced to Branch (Cost)	3,40,000
Sales at Branch:
Cash	2,50,100
Credit	3,10,000
Cash Collected from Debtors	3,04,000
Goods Returned by Debtors	12,000
Goods Returned by Branch to head office	1,500
Shortage of Stock	4,500
Discount Allowed to Customer	2,000
Expenses at Branch	54,000

A19)

Dr. BRANCH STOCK A/c. Cr.

PARTICULARS	AMOUNT	PARTICULARS	AMOUNT
To Balance b/d	93,000	By Branch Cash (Cash Sales)	2,50,100
To Goods sent to sent Branch (3,40,000 X 150%)	5,10,000	By Branch Debtors(Credit Sales)	3,10,000
To Branch Debtors	12,000	By Goods sent to Branch	1,500
		By Branch Adjustment (Shortage)	4,500
		By Balance c/d	48,900
TOTAL	6,15,000	TOTAL	6,15,000

Dr. BRANCH ADJUSTMENT A/c. Cr.

PARTICULARS	AMOUNT	PARTICULARS	AMOUNT
To Branch Stock(Shortage)	4,500	By Stock Reserve(Loading on Opening Stock)	31,000
To Goods Sent to Branch	500	By Goods Sent to Branch	1,70,000
To Gross Profit c/d	1,79,700
To Stock Reserve(Loading on Closing Stock)	16,300
TOTAL	2,01,000	TOTAL	2,01,000

Dr. BRANCH PROFIT & LOSS A/c. Cr.

PARTICULARS	AMOUNT	PARTICULARS	AMOUNT
To Branch Expenses	54,000	By Branch Stock (Gross Profit)	1,79,700
To Discount	2,000
To General P&L (Bal Fig)	1,23,700
TOTAL	1,79,700	TOTAL	1,79,700

Dr. GOODS SENT TO BRANCH A/c. Cr.

PARTICULARS	AMOUNT	PARTICULARS	AMOUNT
To Branch Stock	1,500	By Branch Stock	5,10,000
To Branch Adjustment	1,70,000	By Branch Adjustment	500
To Trading A/c(Bal Fig)	3,39,000

TOTAL	5,10,500	TOTAL	5,10,500

Dr. BRANCH DEBTORS A/c. Cr.

PARTICULARS	AMOUNT	PARTICULARS	AMOUNT
To Balance b/d	68,000	By Branch Cash (Received from Debtors)	3,04,000
		By Branch expenses (Discount)	2,000
To Branch Stock (Credit Sales)	3,10,000	By Branch Stock (Returns)	12,000
		By Balance c/d	60,000
TOTAL	3,78,000	TOTAL	3,78,000

Dr. BRANCH CASH A/c. Cr.

PARTICULARS	AMOUNT	PARTICULARS	AMOUNT
To Sales	2,50,100	By Head Office Cash	5,54,100
To Debtors	3,04,000	(Sent to HO)
TOTAL	5,54,100	TOTAL	5,54,100

Q20) A Ltd. has a branch in Calcutta. Goods are invoiced at cost plus 25%.
Opening Balance	2002
Stock	3,200
Debtors	1,300
Goods sent to Branch (Invoice price)	75,000
Sales at Calcutta
Cash Sales	32,000
Credit Sales	38,000
Cash collected from Debtors	33,400
Discount allowed	400
Bad Debts written off	250
Cash sent to Branch for expenses	5,500
Stock at end	7,900

A20)

BRANCH STOCK A/C
To Balance b/d	3,200	To Cash Sales	32,000
To Goods Sent to Branch A/c		By Branch Debtors	38,000
	75,000	By Branch Adjustment A/c	300
		By Balance c/d	7,900
	78,200		78,200
GOODS SENT TO BRANCH A/C
To br. Adjustment A/c (loading)	15,000	By Br. Stock A/c	75,000
To Trading A/c (Transfer)	60,000
	75,000		75,000

BRANCH STOCK RESERVE A/C

To Br. Adjustment A/c			640	By Balance b/d		640
To balance c/d			1,580	By Branch Adj. A/c		1,580
			2,220			2,220
BRANCH DEBTORS A/C
To Balance b/d			1,300	By Cash		33,400
To Branch Stock (Cr. Sales)			38,000	By Branch Exp. A/c
				Discount	400
				Bad Debts	250	650
				By Bal. c/d		5,250
			39,300			39,300
BRANCH ADJUSTMENT A/C
To Branch Stock Reserve
(closing stock) A/c			1,580	By Stock Reserve (opening stock)		640
To br. Stock A/c (shortage)			300
To Br. Exp. A/c			7,150	By Goods sent to br. A/c		15,000
To P & L A/c			6,610
			15,640			15,640
BRANCH EXPENSES A/C
To Cash			6,500	By Branch Adjustment A/c		7,150
To branch Dr.s A/c
	Discount	400
	Bad Debts	250	650
			7,150			7,150

Q21) From the following Trial Balance, prepare Departmental Trading and Profit and Loss Account for the year ended 31.12.2013 and a Balance Sheet as at the date in the books of Sri S. Maity:

Particulars	Dr. Rs.	Cr. Rs.
Stock (1.1.2013): Dept. A Dept. B Purchases: Dept. A Dept. B Sales: Dept. A Dept. B Wages: Dept. A Dept. B Rent Salaries Lighting and Heating Discount Allowed Discount Received Advertising Carriage Inward Furniture and Fittings Plant and Machinery Sundry Debtors Sundry Creditors Capital Drawings Cash in hand Cash at Bank	5,400 4,900 9,800 7,350 1,340 240 1,870 1,320 420 441 738 469 600 4,200 1,820 900 32 1,980	16,900 13,520 133 3,737 9,530
	43,820	43,820

The following information is also provided:Rent and Lighting and Heating are to be allocated between Factory and Office in the ratio of 3:2. Rent, Lighting and Heating, Salaries and Depreciation are to be apportioned to A and B Depts. as 2:1. Other expenses and incomes are to be apportioned to A and B Depts. on suitable basis.

The following adjustments are to be made: Rent Prepaid Rs 370; Lighting and Heating outstanding Rs 180; Depreciation of Furniture and Fittings @ 10% p.a. and Plant and Machinery @ 10% p.a.

The Stock at 31.12.2012: Dept. A Rs 2,748; Dept. B Rs 2,401.

A21)

In the books of Sri S. Maity

Departmental Trading and Profit & Loss Account for the year ended 31.12.2013

Dr. Cr.

Particulars	Dept. A Rs	Dept. B Rs	Total Rs	Particulars	Dept. A Rs	Dept. B Rs	Total Rs
To Opening Stock	5,400	4,900	10,300	By Sales ,, Closing Stock By Gross Profit b/d ,, Dis. Received (4 :3) ,, Net Loss	16,900	13,520	30,420
,, Purchase	9,800	7,350	17,150		2,748	2,401	5,149
,, Wages	1,340	240	1,580
,, Carriage Inwards (4:3)	268	201	4691
,, Rent	600	300	9006
,, Lighting and Heating	240	120	3602
,, Gross Profit c/d	2,000	2,810	4,810
	19,648	15,921	35,569		19,648	15,921	35,569
To Rent	400	200	6006		2,000	2,810	4,810
,, Advertisement	410	328	7384
,, Salaries (2:1)	880	440	1,3205
,, Lighting and Heating	160	80	2402		76	57	1337
,, Discount Allowed					339	---	---
(on Sales)	245	196	4413
,, Dep. On (2:1)
Plant & Machinery	280	140	420
Furniture & Fixture	40	20	60
,, Net Profit	---	1,463	1,124
	2,415	2,867	4,943		2,415	2,867	4,943

Balance Sheet as at 31.12.2013

Liabilities	Amount Rs	Amount Rs	Assets	Amount Rs	Amount Rs
Capital	9,530		Plant and Machinery	4,200
Add: Net Profit	1,124		Less: Depreciation	420	3,780
	10,654		Furniture and Fittings	600
Less: Drawings	900	9,754	Less: Depreciation	60	540
Sundry Creditors		3,737
Outstanding Liabilities:			Closing Stock:
Lighting and Heating		180	Dept. A	2,748
			Dept. B	2,401	5,149
			Sundry Debtors		1,820
			Prepaid Rent		370
			Cash at Bank		1,980
			Cash in Hand		32
		13,671			13,671

Workings:

Allocation of Expenses and Incomes

Sl. No.	Expense/Income	Basis	Dept. A	Dept. B
1	Carriage Inward	Purchase (4:3)	=Rs 469 x 4/7 = Rs 268	= Rs 469 x 3/7 = Rs 201
2	Lighting & Heating (Rs 420 + Rs 180) Factory part = 600 x 3/5 Office part = 600 x 2/5	Rs 600 (Given) 360 240	= Rs 360 x 2/3 = Rs 240 = Rs 240 x 2/3 = Rs 160	= Rs 360 x 1/3 = Rs 120 = Rs 240 x 1/3 = Rs 80
3	Discount Allowed	= Sales	= Rs 441 x (16900/30420) = Rs 245	= Rs 441 x (13520/30420) = Rs 196
4	Advertisement	= Sales	= Rs 738 x (16900/30420) = Rs 410	= Rs 738 x (13520/30420) = Rs 328
5	Salaries	2 : 1	= Rs 1,320 x (2/3) = Rs 880	= Rs 1,320 x (1/3) = Rs 440
6	Rent Rs 1,500 = (Rs 1,870 – Rs 370) Factory part = 1,500 x 3/5 = 900 Office part = 1,500 x 2/5 =600	2 : 1 2 : 1	= Rs 900 x (2/3) = Rs 600 = Rs 600 x (2/3) = Rs 400	= Rs 900 x (1/3) = Rs 300 = Rs 600 x (1/3) = Rs 200
7	Discount Received	Purchase (4:3)	= Rs 133 x (4/7) = Rs 76	= Rs 133 x (3/7) = Rs 57

Q22) The Trading and Profit & Loss Account of Bindas Ltd. for the year ended 31st March is as under:

Particulars		Amount Rs	Particulars		Amount Rs
Purchases			Sales
Transistors	(A)	1,60,000	Transistors	(A)	1,75,000
Tape Recorders	(B)	1,25,000	Tape Recorders	(B)	1,40,000
Spare parts for Servicing and			Servicing and Repair Jobs	(C)	35,000
Repair Job	(C)	80,000	Stock on 31st March
			Transistors	(A)	60,100
Salaries and wages		48,000	Tape Recorders	(B)	20,300
Rent		10,800	Spare parts for servicing &
Sundry Expenses		11,000	repair jobs	(C)	44,600
Net Profit		40,200
		4,75,000			4,75,000

Prepare Departmental Accounts for each of the three Departments A, B and C mentioned above after taking into consideration the following :

Transistors and Tape Recorders are sold at the Showroom. Servicing and Repairs are carried out at the Workshop.

Salaries and wages comprise as follows: Showroom 3/4th and Workshop 1/4th

It was decided to allocate the Showroom Salaries and Wages in ratio 1:2 between Departments A and B.

Workshop Rent is Rs 500 per month. Showroom Rent is to be divided equally between Departments A and B.

Sundry Expenses are to be allocated on the basis of the turnover of each Department.

A22)

Departmental P&L Accounts for the year ended 31st March (Amount in Rs)

Dr. Cr.

Particulars	A Rs	B Rs	C Rs	Particulars	A Rs	B Rs	C Rs
To Purchases		1,25,000	—	By Sales	1,75,000	1,40,000	—
To Spares	—	—	80,000	By Services	—	—	35,000
To Salary & Wages	12,000	24,000	12,000	By Closing Stock	60,100	20,300	44,600
To Rent	2,400	2,400	6,000	By Net Loss	—	—	19,500
To Sundry Expenses*	5,500	4,400	1,100
To Net Profit	55,200	4,500
	2,35,100	1,60,300	99,100		2,35,100	1,60,300	99,100

Note : Sundry Expenses are apportioned in the ratio of Turnover (5 : 4 : 1) i.e. 1,75,000 : 1,40,000 : 35,000.

Inter Departmental Transfer

Transfer made by one department to another may be recorded either:

At Cost Price; and

At Invoice Price i.e., Market Based Price.

At Cost Price

When transfers are made, Recipient Department should be debited at cost price and Transferring Department should be credited at Cost Price.

Q23) Make an appropriate entry for inter transfer of goods from one department to another. Department A transferred goods for Rs 30,000 to Department B.

A23)

In the Books of...

Journal

Date	Particulars	L/F	Debit Rs	Credit Rs
	Department Trading (B) A/c Dr. To Department Trading (A) A/c (Goods are transferred to Department B from Department A.)		30,000	30,000

At Invoice Price i.e., Provision for unrealized Profit.

In case of goods transfer from one department to another, no problem arises if all goods are sold within the year. On the other hand, problem arises where all goods are not sold. Under the circumstances, appropriate adjustments must be made against the unsold stock for ascertaining the correct profit or loss. As such, provision to be made for both opening stock and closing stock. The entries for this purpose are:

For Opening Stock Reserve:

Opening Stock Reserve A/c Dr.

To General Profit and Loss A/c

For Closing Stock Reserve:

General Profit and Loss A/c Dr.

To Closing Stock Reserve A/c

Trucks Account

Date	Particulars	Amount	Date		Particulars		Amount
		Rs.					Rs.
1st year			1st	year
Jan.1	To delhi Motors	30,000	Dec.31		By Depreciation
Dec.31	To Delhi Motors	40,000			20% on 1,50,000		30,000
		Dec.31			By Balance c/d		40,000
		70,000					70,000
2st year		2st		year
Jan.1	To Balance b/d	40,000	Dec.31		By Depreciation
	To Delhi Motors(2)	31,000			(20% on Rs.1,20,000)		24,000
			Dec.31		By P & L A/c (Loss on seizure)
					(Balancing figure)		15,000
			Dec.31		By Balance c/d (3)		32,000
		71,000					71,000
			Delhi	Motors
Date	Particulars		Rs.	Date		Particulars	Rs.
1st year				1st year
Jan.1	To Cash A/c		30,000	Jan.1		By Trucks A/c	30,000
Dec.31	To Cash A/c		40,000	Dec.31		By Trucks A/c	40,000
	To Cash A/c		10,000	Dec.31		By Interest A/c@ 9% p.a.	10,800
			80,000				80,000
2st year				2st year
Dec.31	To Balance (31,000+7,200)		38,200	Dec.31		By Interest @ 9% p.a.	7,200
						By Trucks A/c (2)	31,000
			38,200				38,200

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