This document discusses accounting for hire purchase and installment purchase transactions. It provides journal entries for the purchase of an asset under hire purchase, including entries for down payment, interest due, installment payments, depreciation, and closing entries. It then discusses installment purchase agreements and provides similar journal entries for purchasing an asset under an installment system, including entries for the purchase price, down payment, interest due, installment payments, depreciation, and closing entries.
1. Absorption is a form of merger where there is a combination of two or more companies into an 'existing company'.
2. Features - One or more companies are liquidated, Generally, larger company purchase the business of smaller company.
3. Objectives - To have control over the market, To eliminate unnecessary competition, To get benefits of large scale operations.
4. Advantages - Expansion, Faster growth, Increased efficiency.
5. Reconstruction - Internal reconstruction is a method in which the reconstruction is undertaken without winding up the company and forming a new one.
External reconstruction takes place when an existing company goes into liquidation for the express purpose of selling its assets and liabilities.
6. Purchase Consideration - It is price payable by transferee company to transferor company by taking over the business of transferor company.
7. Amalgamation - When two or more different companies join to become one, the process is called Amalgamation.
Lease Financing
Terminology
The advantages of leasing
Limitation of leasing
Types of Leasing
Financial lease
Operating lease
Sale and lease back
Leveraged leasing
Direct leasing
Other types
Problems of leasing in India
1. Absorption is a form of merger where there is a combination of two or more companies into an 'existing company'.
2. Features - One or more companies are liquidated, Generally, larger company purchase the business of smaller company.
3. Objectives - To have control over the market, To eliminate unnecessary competition, To get benefits of large scale operations.
4. Advantages - Expansion, Faster growth, Increased efficiency.
5. Reconstruction - Internal reconstruction is a method in which the reconstruction is undertaken without winding up the company and forming a new one.
External reconstruction takes place when an existing company goes into liquidation for the express purpose of selling its assets and liabilities.
6. Purchase Consideration - It is price payable by transferee company to transferor company by taking over the business of transferor company.
7. Amalgamation - When two or more different companies join to become one, the process is called Amalgamation.
Lease Financing
Terminology
The advantages of leasing
Limitation of leasing
Types of Leasing
Financial lease
Operating lease
Sale and lease back
Leveraged leasing
Direct leasing
Other types
Problems of leasing in India
Capital expenditure & Revenue expenditureMudassir Raza
Capital expenditures are typically one-time large purchases of fixed assets that will be used for revenue generation over a longer period. Revenue expenditures are the ongoing operating expenses, which are short-term expenses used to run the daily business operations.
Factoring is a financial transaction and a type of debtor finance in which a business sells its accounts receivable (i.e., invoices) to a third party (called a factor) at a discount. Factoring is commonly referred to as accounts receivable factoring, invoice factoring, and sometimes accounts receivable financing.
There are three parties directly involved: the factor who purchases the receivable, the one who sells the receivable, and the debtor who has a financial liability that requires him or her to make a payment to the owner of the invoice.
There are various types of factoring:
Recourse, Non - recourse, maturity and cross - border factoring.
Capital expenditure & Revenue expenditureMudassir Raza
Capital expenditures are typically one-time large purchases of fixed assets that will be used for revenue generation over a longer period. Revenue expenditures are the ongoing operating expenses, which are short-term expenses used to run the daily business operations.
Factoring is a financial transaction and a type of debtor finance in which a business sells its accounts receivable (i.e., invoices) to a third party (called a factor) at a discount. Factoring is commonly referred to as accounts receivable factoring, invoice factoring, and sometimes accounts receivable financing.
There are three parties directly involved: the factor who purchases the receivable, the one who sells the receivable, and the debtor who has a financial liability that requires him or her to make a payment to the owner of the invoice.
There are various types of factoring:
Recourse, Non - recourse, maturity and cross - border factoring.
Hire purchase as a financial service.pptxSudhamathi4
Hire Purchase - Meaning
Hire purchase is an arrangement for buying expensive goods, where the buyer makes an initial down payment and pays the balance plus interest in installments.
The term hire purchase is commonly used in the United Kingdom and it's more commonly known as an installment plan in the United States.
Hire Purchase - Meaning
According to the Hire Purchase Act of 1972, the term ‘hire purchase’ is defined as , “ an agreement under which goods are let on hire and under which the hirer has an option to purchase them in accordance with the terms of the agreement, and includes an agreement under which:
A. Possession of goods is delivered by the owner thereof to a person on the condition that such person pays the agreed amount in periodic payments.
The property of the goods is to pass to such a person on the payment of the last of such instalment
Such a person has a right to terminate the agreement any time before the property so passes.”
Features of Hire Purchase
The asset ownership is transferred to the buyer only after the final installment is paid.
Buyer pays for the asset in regular installments, which includes both the principal amount and the interest.
Asset itself serves as security. In case the buyer fails to pay installments, the seller can repossess the asset.
The buyer has the option to buy the asset at any time by paying the remaining installments in one go.
Interest is charged over unpaid balance instead of the original price of the asset.
Until the final payment is made, the maintenance of asset remains the responsibility of the buyer, not the seller.
Buyer can terminate agreements at any time before taking ownership of the asset.
Interest is charged over unpaid balance instead of the original price of the asset.
Until the final payment is made, the maintenance of asset remains the responsibility of the buyer, not the seller.
Buyer can terminate agreements at any time before taking ownership of the asset.
Interest is charged over unpaid balance instead of the original price of the asset.
Until the final payment is made, the maintenance of asset remains the responsibility of the buyer, not the seller.
Buyer can terminate agreements at any time before taking ownership of the asset.
Rights of Hirer
The hire purchase act of 1972, provides the following rights to the hirer
Rights of Protection
It is not possible for the hire vendor to terminate the hire purchase agreement on account of default in payment of hire charges by the hirer, or due to unauthorized act or breach of express conditions, unless the hire vendor gives notice in writing to the hirer in this regard
Right of Notice
When the hire charges are weekly, or for a period less than that, one week notice is to be given, and in all other cases a two weeks notice is to be given.
Right of Repossession:
The right of repossession is not available to the hire vendor, unless sanctioned by the court in the following cases:
1. one half of the price has been paid where the
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Hire Purchase
1. ACCOUNTING FOR HIRE
PURCHASE AND ACCOUNTING
FOR INSTALLMENT PURCHASE
TRANSACTION
Complied By:-
Dhrumil Shah
FY BBA
Div 1
Roll No. 47
2. HIRE PURCHASE
Hire Purchase system means a system under
which assets are let on hire and a hirer has an
option to purchase them in accordance with the
terms of the agreement.
In simple words, hire purchase can be defined as
the system under which one pays regular
installments while using the asset.
2
3. JOURNAL ENTRIES FOR HIRE PURCHASE TRANSACTION
For the Purchase/Sale of the Asset/goods
Example:
Gopinath & Co. acquired a machinery on hire purchase from French Ltd.
of Rs. 1,00,000.
For Hire Purchaser
(Being purchase of asset from French Ltd.)
For Hire Vendor
(Being Sale of machinery to Gopinath & Co.)
In the Books of Hire Purchaser In the Books of Hire Vendor
Asset a/c Dr.
To Hire Vendor’s a/c
Hire Purchaser’s a/c Dr.
To Hire Purchase Sales
3
Particulars L.F. Debit Credit
Machinery a/c Dr.
To French Ltd.
1,00,000
1,00,000
Particulars L.F. Debit Credit
Gopinath & Co. Dr.
To Gopinath & Co.
1,00,000
1,00,000
4. JOURNAL ENTRIES FOR HIRE PURCHASE TRANSACTION
For making/receiving Cash Down Payment
Example:
Gopinath & Co. made a down payment of Rs. 40,000 to French Ltd.
For Hire Purchaser
(Being down payment made for machinery)
For Hire Vendor
(Being down payment received from Gopinath & Co.)
4
In the Books of Hire Purchaser In the Books of Hire Vendor
Hire Vendor’s a/c Dr.
To Cash/Bank a/c
Cash/Bank a/c Dr.
To Hire Purchaser’s a/c
Particulars L.F. Debit Credit
French Ltd. a/c Dr.
To Bank a/c
40,000
40,000
Particulars L.F. Debit Credit
Bank a/c Dr.
To Gopinath & Co.
40,000
40,000
5. JOURNAL ENTRIES FOR HIRE PURCHASE TRANSACTION
For Interest Due
Example:
Interest chargeable is 10% p.a.
For Hire Purchaser
(Being interest due at 6%)
For Hire Vendor
(Being interest due at 6%)
5
In the Books of Hire Purchaser In the Books of Hire Vendor
Interest a/c Dr.
To Hire Vendor’s a/c
Cash/Bank a/c Dr.
To Hire Purchaser’s a/c
Particulars L.F. Debit Credit
Interest a/c Dr.
To French Ltd.
3600
3600
Particulars L.F. Debit Credit
Bank a/c Dr.
To Gopinath & Co.
3600
3600
6. JOURNAL ENTRIES FOR HIRE PURCHASE TRANSACTION
For Payment/Receipt of Hire Purchase Installment
Example:
Annual installment of Rs. 20,000 are to be paid.
For Hire Purchaser
(Being payment of installment and interest)
For Hire Vendor
(Being payment of installment and interest received)
6
In the Books of Hire Purchaser In the Books of Hire Vendor
Hire Vendor’s a/c Dr.
To Cash/Bank a/c
Hire Purchaser’s a/c Dr.
To Interest a/c
Particulars L.F. Debit Credit
French Ltd. Dr.
To Bank a/c
23,600
23,600
Particulars L.F. Debit Credit
Gopinath & Co. Dr.
To Interest
23,600
23,600
7. JOURNAL ENTRIES FOR HIRE PURCHASE TRANSACTION
For charging depreciation(At the end of year)
Example:
Depreciation is charged at 10% p.a.
For Hire Purchaser
(Being depreciation charged at 10%)
7
In the Books of Hire Purchaser In the Books of Hire Vendor
Depreciation a/c Dr.
To Asset a/c
No Entry
Particulars L.F. Debit Credit
Depreciation a/c Dr.
To Machinery a/c
10,000
10,000
8. JOURNAL ENTRIES FOR HIRE PURCHASE TRANSACTION
For closure of Depreciation a/c and Interest a/c
Example:
For Hire Purchaser
(Being Depreciation and Interest charged to Profit and Loss a/c)
For Hire Vendor
(Being interest amount transferred to profit and loss a/c)
8
In the Books of Hire Purchaser In the Books of Hire Vendor
Profit & Loss a/c Dr.
To Depreciation a/c
To Interest a/c
Interest a/c Dr.
To Profit & Loss a/c
Particulars L.F. Debit Credit
Profit & Loss a/c Dr.
To Depreciation a/c
To Interest a/c
13,600
10,000
3600
Particulars L.F. Debit Credit
Interest a/c Dr.
To Profit & Loss a/c
3,600
3600
9. INSTALLMENT SYSTEM
Installment purchase agreement means an
agreement of sale or in other words, it is a system
where the buyer is given the ownership as well as
the possession of the goods at the time of signing
the contract. The buyer has the facility to pay the
price in installments.
9
10. For Purchase/Sale of Asset
Example:
A purchased a machine under Installment Purchase System from B
on 1st January 2006 for a sum of Rs. 1,60,000. Rs. 40,000 is to paid
on signing the contract and the cash price of the machine was Rs.
1,49,000.
For Purchaser
For Seller
10
JOURNAL ENTRIES FOR INSTALLMENT PURCHASE
TRANSACTION
In the Books of Purchaser In the Books of Seller
Asset a/c Dr.
Interest Suspense a/c Dr.
To Seller’s a/c
Purchaser’s a/c Dr.
To Interest Suspense a/c
To Sales a/c
Particulars L.F. Debit Credit
Machinery a/c Dr.
Interest Suspense a/c Dr.
To B’s a/c a/c
1,49,000
11,000
1,60,000
Particulars L.F. Debit Credit
A’s a/c Dr.
To Interest Suspense a/c
To Sales a/c
1,60,000
11,000
1,49,000
11. For Cash Down payment
Example:
A made a down payment of Rs. 40,000 to B.
For Purchaser
(Being down payment made)
For Seller
(Being Down Payment received)
11
JOURNAL ENTRIES FOR INSTALLMENT PURCHASE
TRANSACTION
In the Books of Purchaser In the Books of Seller
Seller’s a/c Dr.
To Cash/Bank a/c
Cash/Bank a/c Dr.
To Purchaser’s a/c
Particulars L.F. Debit Credit
B’s a/c Dr.
To Bank a/c a/c
40,000
40,000
Particulars L.F. Debit Credit
Bank a/c Dr.
To A’s a/c a/c
40,000
40,000
12. For Interest due on Cost price
Example:
Interest is charged by B at 5%.
For Purchaser
(Being Interest due)
For Seller
(Being Interest Due)
12
JOURNAL ENTRIES FOR INSTALLMENT PURCHASE
TRANSACTION
In the Books of Purchaser In the Books of Seller
Interest a/c Dr.
To Interest Suspense a/c
Interest Suspense a/c Dr.
To Interest a/c
Particulars L.F. Debit Credit
Interest a/c Dr.
To Interest Suspense a/c
5450
5450
Particulars L.F. Debit Credit
Interest Suspense a/c Dr.
To Interest a/c
5450
5450
13. For Payment/Receipt of Installment
Example:
The payment was made in 3 equal installments of Rs. 40,000 each.
For Purchaser
(Being payment of Installment)
For Seller
(Being payment of Installment received)
13
JOURNAL ENTRIES FOR INSTALLMENT PURCHASE
TRANSACTION
In the Books of Purchaser In the Books of Seller
Seller’s a/c Dr.
To Cash/Bank a/c
Cash/Bank a/c Dr.
To Purchaser’s a/c
Particulars L.F. Debit Credit
B’s a/c Dr.
To Bank a/c a/c
40,000
40,000
Particulars L.F. Debit Credit
Bank a/c Dr.
To A’s a/c a/c
40,000
40,000
14. For charging Depreciation(at the end of year)
Example:
The buyer charges depreciation at 10% p.a.
For Purchaser
(Being depreciation charged at 10% p.a.)
14
JOURNAL ENTRIES FOR INSTALLMENT PURCHASE
TRANSACTION
In the Books of Purchaser In the Books of Seller
Depreciation a/c Dr.
To Asset a/c
No Entry
Particulars L.F. Debit Credit
Depreciation a/c Dr.
To Machine a/c
14,900
14,900
15. For closure of Depreciation and Interest
Example:
For Purchaser
(Being expenses charged to Profit and loss a/c)
For Seller
(Being interest amount transferred to Profit and Loss a/c)
15
JOURNAL ENTRIES FOR INSTALLMENT PURCHASE
TRANSACTION
Particulars L.F. Debit Credit
Profit and Loss a/c Dr.
To Depreciation a/c
To Interest a/c
20,350
14,900
5450
In the Books of Hire Purchaser In the Books of Hire Vendor
Profit & Loss a/c Dr.
To Depreciation a/c
To Interest a/c
Interest a/c Dr.
To Profit & Loss a/c
Particulars L.F. Debit Credit
Interest a/c Dr.
To Profit & Loss a/c
5450
5450