ACCOUNTING FOR HIRE PURCHASE TRANSACTIONS by : DR. T.K. JAIN AFTERSCHO ☺ OL centre for social entrepreneurship sivakamu veterinary hospital road bikaner 334001 rajasthan, india FOR – PGPSE / CSE PARTICIPANTS mobile : 91+9414430763
My words.... here i present basic aspects ofaccounting for hire purchase transactions i wish that more people should become entrepreneurs. an ordinary indian entrepreneur wishes to remain an honest entrepreneur and contribute to the development of nation,let us support entrepreneurs JOIN AFTERSCHOOOL MOVEMENT ..
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What is hire purchase ? Here possession of goods is transferred immediately, but payment is made in instalments. Ownership is transferred after all the instalments have been paid.
Terms of hire purchase In hire purchase the purchase has to follow the agreement and he cannot terminate the contract. The seller can however, terminate the agreement in case of default of purchaser hire purchase price is higher than cash price, because interest element is added in this price
A purchases a machine for down payment of Rs. 20000 and 3 annual instalments of 20000 each. Cash price is 74500. show the accounting ? Rate of interest 5% 74500 – 20000 = 54500 interest = 2725 amount due : 57225 2 nd instalement 20000 amount due : 37225 interest = 1861 due = 39086 3 rd instalment : 20000, balance : 19086 interst (belancing amt) : 914 last instalment 20000 balance = nil
What entry is made on purchase of an asset on hire purchase ? Asset on hire purchase debit to hire purchase vendor a/c credit (with the cash price of assets)
What entry is made on payment of an asset purchased on hire purchase ? Hire vendor ac debit to bank
What entry is made on payment of an asset purchased on hire purchase ? Interest on hire purchase debit to hire vendor a/c credit
What entry is made about depreciation of an asset purchased on hire purchase ? Depreciation on asset a/c debit to asset account credit SECOND ENTRY p & l a/c debit to depreciation credit
What entry is made in the books of vendor on hire purchase sale ? Hire purchaser a/cdebit to hire purchase sale a/c credit (with the cash price of goods) WHEN PAYMENT IS RECEIVED bank a /c debit to hire purchaser a/c credit FOR INTEREST hire purchaser debit to interest on hire purchase sale a/c credit
What is accrual system of hire purchase ? Here the amount is recorded as per accrual (due). Thus the entry is made only for that amount which has become due.
What entry is made in accrual system on purchase of an asset under hire purchase system ? Asset on hire purchase debit to hire purchase vendor a/c credit (with the amount actually becoming due as downpayment amount / instalment amount) (compare it to previous part, where cash price was taken)
What is repossession ? If hire purchaser doesnt pay instalments, the vendor will take repossession of the assets. There are two types of repossession : 1. full repossession 2. partial repossession
What is the entry in the books of purchaser on full repossession ? Hire ventor a/c debit to asset a/c (from the value of asset as per accounts)
What is the entry in the books of vendor on full repossession ? Goods repossession a/c debit to hire purchaser account credit (a new account of goods repossession will be opened)
What is the accounting entry in the case of partial repossession ? In the case of full repossession, the hire purchaser will close the account of ventor and vendor will close the account of purchaser. But in case of partial repossession, the accouts will remain open and the account will show balance for remaining assets
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