NAHATA PROFESSIONAL ACADEMY , Indore

Past Examination Questions of Accounting

CA Anil Nahata
Hire Purchase & Installment sale Transactions

Question 1

Ram & Co. acquired a motor lorry on hire-purchase basis. It has to make cash down
payment of ` 1,00,000 at the beginning. The payments to be made subsequently
are ` 2,63,000; ` 1,85,000 and ` 1,14,000 at the end of first year, second year and
third year respectively. Interest charged is @ 14% per annum. Calculate the cost price
of motor lorry and interest paid in each instalment. (4 Marks, May, 2008) (PCC)

Solution :-

Calculation of cost price and total interest to be paid on motor lorry

No. of Amount due at the time Interest on cumulative Cash Price in

instalmen of instalment instalment each instalment
t
III 1,14,00 14 1,00,000
1,14,000 × = 14,000
0
114
II 1,85,00 14 1,50,000
2,85,000* × = 35,000
0
114
I 2,63,0 14 2,00,000
5,13,000** ×
00
63,000
114
Cash down payment 1,00,000
Total 1,12,000 5,50,000
 * 1,00,000 + 1,85,000 = 2,85,000.

**2,63,000 + 1,50,000 + 1,00,000 = 5,13,000.

Question 2 From the following, calculate the cash price of the asset:
`
Hire purchase price of the asset 50,000
Down payment 10,000
Four annual instalments at the end of each year 10,000
Rate of interest 5% p.a
(2 Marks each, May, 2010) (IPCC)

Answer

Calculation of cash price of the asset

Number of Closing Amount of Total Interest Opening

instalments balance instalment 5/105 balance
4 0 10,00 10,00 476 9,524
0 0
3 9,524 10,00 19,52 930 18,594
0 4
2 18,59 10,00 28,59 1,36 27,232
4 0 4 2
1 27,23 10,00 37,23 1,77 35,459
2 0 2 3
Cash price of the asset = Down payment + ` 35,459

= ` 10,000 + ` 35,459

= ` 45,459

Question 3

On 1st April, 2012 Fastrack Motors Co. sells a truck on hire purchase basis to Teja
Transport Co. for a total hire purchase price of ` 9,00,000 payable as to `
2,40,000 as down payment and the balance in three equal annual instalments of
` 2,20,000 each payable on 31st March, 2013, 2014 and 2015.
The hire vendor charges interest @ 10% per annum.
You are required to ascertain the cash price of the truck for Teja Transport Co.
Calculations may be made to the nearest rupee. (5 Marks, November 2012)
(IPCC)
Answer

Rate of interest
Ratio of interest and amount due =

100 Rate of interest

= 10

110

= 1

11

There is no interest element is there in the down payment as it is paid on the date of the
transaction. Instalments paid after certain period includes interest portion also.
Therefore, to ascertain cash price, interest will be calculated from last instalment to first
instalment as follows:

Calculation of Interest and Cash Price

No. of Amount due at the Interest Cumulative

instalments time of instalment Cash price

[1] [2] [3] (2-3) = [4]

3rd 2,20,000 1/11 of ` 2,20,000 =` 2,00,000

20,000

2nd 4,20,000 [W.N.1] 1/11 of ` 4,20,000= ` 3,81,818

38,182

1st 6,01,818 [W.N.2] 1/11of ` 6,01,818= ` 54,711 5,47,107

Total cash price = ` 5,47,107+ 2,40,000 (down payment) =` 7,87,107

Working Notes:

1. ` 2,00,000+ 2nd instalment of ` 2,20,000= ` 4,20,000.

2. ` 3,81,818+ 1st instalment of ` 2,20,000= ` 6,01,818

Question 4

On 1st April, 2012, M/s. Power Motors sold on hire purchase basis a truck whose cash
price was ` 9,00,000 to M/s. Singh & Singh, a transport firm. The terms of the contract
were that the transporters were to pay ` 3,00,000 down and six four-monthly
instalments of ` 1,00,000 plus interest on outstanding amount of cash price for the
intervening four months. The instalments were payable on 31st July, 30th November
and 31st March in each one of the two accounting years. Interest was calculated @ 12%
per annum.

M/s. Singh & Singh duly paid the instalment on 31st July, 2012 but failed to pay the
instalment on 30th November, 2012. M/s. Power Motors, after legal formalities,
repossessed the truck valuing it at ` 7,00,000.
M/s. Power Motors spent ` 80,000 on repairs and repainting of the
truck and on 7th January, 2013 sold it for ` 7,50,000 cash.
You are required to prepare M/s. Singh & Singh’s A/c and Goods Repossessed
Account in the books of M/s. Power Motors. (6 Marks, May 2013)
(IPCC)
Answer

In the books of M/s. Power

Motors M/s. Singh & Singh’s
Account

Date Particulars ` Date Particulars `

1.04.2012 T Hire Purchase Sales 9,00,000 1.04.2012 B Bank 3,00,000
A/c (Cash Price) (Dow
31.07.2012 o Interest A/c 24,000 31.07.201 y n payment) 1,24,000
4 2 Bank
(6,00,000 .12 ) (1,00,000+24,00
T B
12 0)
30.11.2012 Interest A/c 30.11.201
o 2 y
4
(5,00,000 .12 ) 7,00,000
Goods
12 20,000
Repossessed A/c
Profit & Loss
30.11.2012 To 1,80,000 By
Account (Bal. fig.)

To
11,24,000 11,24,000

Goods Repossessed Account

Date Particulars ` Date Particulars `

30.11.201 T Singh & Singh’s 7,00,000 7.1.201 B Bank A/c 7,50,000
2 o A/c 3 y By Profit & Loss
7.1.2013 Bank A/c 80,000 7.1.201 A/c –loss
T 3 B
(Repairs)
o y 30,000
 7,80,000 7,80,000

Question 5
Happy Valley Florists Ltd. acquired a delivery van on hire purchase on
01.04.2010 from Ganesh Enterprises. The terms were as follows:
Particula Amount (`)
rs
Hire Purchase Price 1,80,000
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 ` 1,50,000 and depreciation is charged at
10% WDV. You are required to:
(i) Calculate Total Interest and Interest included in each installment
(ii) Prepare Van A/c., Ganesh Enterprises A/c. in the books of Happy Valley
Florists Ltd. up to 31.03.2014. (8 Marks, IPCC,May, 2014)
Answer

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%)

Yea Cash DF PV DF PV
r Flow @6% @12%
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 1,62,50 NPV 1,48,60
0 0
 Interest rate implicit on lease is computed below by interpolation:
1,62,500 1,50,000
Interest rate implicit on lease = 6% + 12 6 11.39%

1,62,500 1,48,600
12,500
= 6% + 6 11.39%

13,90
0

Thus repayment schedule and interest would be as under:

Installment Principal at Interes Gross Installment Principle at

no. beginning t included amount end
in
eac
h
installme
nt
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*

Ledger Accounts in the books of Happy Valley Florist Ltd.

Van Account

Date Particulars ` Date Particulars `

1.4.2010 To Ganesh 1,50,000 31.03.2011 By Depreciation 15,000
Enterprises A/c
By Balance c/d 1,35,000
1,50,000 1,50,000
1.4.2011 To Balance b/d 1,35,000 31.03..2012 By Depreciation 13,500
A/c
By Balance c/d 1,21,500
To Balance b/d 1,35,000 1,35,000
1.4.2012 1,21,500 31.03.2013 By Depreciation 12,150
A/c
By Balance c/d 1,09,350
To Balance b/d
1,21,500 1,21,500
1.4.2013 1,09,350 31.03.2014 By Depreciation 10,935
A/c
By Balance c/d 98,415
1,09,350 1,09,350
 Ganesh Enterprises Account

Date Particulars ` Date Particulars `

1.4.2010 To Bank A/c 30,000 1.4.10 By Van A/c 1,50,00
0
31.03.201 To Bank A/c 50,000 31.03.11 By Interest c/d 13,668
1
To Balance c/d 83,668
1,63,668 1,63,668
31.03.201 To Bank A/c 50,000 1.4.11 By Balance b/d 83,668
2
To Balance c/d 43,198 31.03.12 By Interest A/c 9,530
93,198 93,198
31.3.2013 To Bank A/c 30,000 1.4.12 By Balance b/d 43,198
To Balance c/d 18,118 31.3.13 By Interest A/c 4,920
48,118 48,118
31.3.2014 To Bank A/c 20,000 1.4.13 By Balance b/d 18,118
31.3.14 By Interest A/c 1,882*
20,000 20,000
*Balanced due to approximation in interest calculations.

Question 6

What are the differences between Hire Purchase and Installment System?
(4 Marks, IPCC November,
2014 & may 17)
Answer

Statement showing differences between Hire Purchase and Installment System

Basis of Distinction Hire Purchase Installment System

1. Governing Act It is governed by Hire It is governed by the Sale
of
Purchase Act, 1972. Goods Act, 1930.
2. Nature of Contract It is an agreement of It is an agreement of sale.
hiring.
3. Passing of Title The title to goods passes The title to goods passes
on
(ownership) last payment. immediately as in the
case
of usual sale.
4. Right to Return The hirer may return Unless seller
goods goods defaults,
without further goods are not returnable.
payment
except for accrued
 installments.
5. Seller’s right to The seller may take The seller can sue for
price
repossess possession of the goods if the buyer is in default.
if hirer is in default. He cannot take
possession of the goods.
6. Right of Disposal Hirer cannot hire out sell, The buyer may dispose
pledge or assign entitling off the goods and give
transferee to retain good title to the bona
possession as against the fide purchaser.
hire vendor.
7. Responsibility for The hirer is not The buyer is responsible
Risk of Loss. responsible for risk of loss for risk of loss of goods
of goods if he has taken because of the
reasonable precaution ownership has
because the ownership transferred.
has not yet transferred.
8. Name of The parties involved are The parties involved are
Parties called Hirer and Hire called buyer and seller.
involved vendor.
9. Component other Component other than Component other than
than cash price. Cash Price included in Cash Price included in
installment is called Hire Installment is called
charges. Interest.
Question 7 Lucky bought 2 tractors from Happy on 1-10-2011 on the following terms:

`
Down payment 5,00,000
1st installment at the end of first year 2,65,000
2nd installment at the end of 2nd year 2,45,000
3rd installment at the end of 3rd year 2,75,000
Interest is charged at 10% p.a.
Lucky provides depreciation @ 20% on the diminishing balances.
On 30-9-2014 Lucky failed to pay the 3rd installment upon which Happy repossessed 1
tractor. Happy agreed to leave one tractor with Lucky and adjusted the value of the
tractor against the amount due. The tractor taken over was valued on the basis of 30%
depreciation annually on written down basis. The balance amount remaining in the
vendor's account after the above adjustment was paid by Lucky after 3 months with
interest @ 18% p.a.
You are required to :
(1) Calculate the cash price of the tractors and the interest paid with each installment.
(2) Prepare Tractor Account and Happy Account in the books of Lucky assuming that books are
closed on September 30 every year. Figures may be rounded off to the nearest rupee. (8 Marks
IPCC May 15)
Solutions

Calculation of Interest and Cash Price

No. of Outstanding Amount Outstandin Interest Outstanding
installments balance at due at the g balance balance at the
the end after time of at the end Beginning
the payment installment before the
of installment payment
of
installment
[1] [2] [3] [4]= 2 +3 [5]= 4 x [6]= 4-5
10/110
3rd - 2,75,000 2,75,000 25,000 2,50,000
2nd 2,50,000 2,45,000 4,95,000 45,000 4,50,000
1st 4,50,000 2,65,000 7,15,000 65,000 6,50,000
Total cash price = ` 6,50,000+ 5,00,000 (down payment) =` 11,50,000.

In the books of Lucky

Tractors Account

Date Particulars ` Date Particulars `

1.10.2011 To Happy a/c 11,50,000 30.9.2012 By Depreciation A/c 2,30,000
Balance c/d 9,20,000
11,50,000 11,50,000
1.10.2012 To Balance b/d 9,20,000 30.9.2013 By Depreciation A/c 1,84,000
Balance c/d 7,36,000
9,20,000 9,20,000
1.10.2013 To Balance b/d 7,36,000 30.9.2014 By Depreciation A/c 1,47,200
By Happy a/c (Value of 1 Tractor
taken over after depreciation for
3 years @30% p.a.) {5,75,000- 1,97,225
(1,72,500+1,20,750+84,525)}

By Loss transferred to Profit and 97,175

Loss a/c on surrender (Bal. fig.)
or (2,94,400-1,97,225)

2,94,400
By Balance c/d
½ (7,36,000-
1,47,200=5,88,800)
7,36,000 7,36,000
 Happy Account

Date Particulars ` Date Particulars `

1.10.11 To Bank (down 5,00,000 1.10.11 By Tractors a/c 11,50,000
payment) 30.9.12 By Interest a/c 65,000
30.9.12 To Bank 1st 2,65,000
Installment
To Balance c/d 4,50,000
12,15,000 12,15,000
30.9.13 To Bank 2nd 2,45,00 1.1012 By Balance b/d 4,50,000
Installment 0 30.9.13 By Interest a/c 45,000
To Balance c/d
2,50,00 4,95,000
0
4,95,00
0
30.914 To Tractor a/c 1,97,225 1.10.13 By Balance b/d 2,50,000
To Balance c/d 77,775 30.9.14 By Interest a/c 25,000
2,75,000 2,75,000
31.12.14 To Bank 81,275 1.10.14 By Balance b/d 77,775
(Amount settled 31.12.14 By Interest a/c (@
after 3 months 18% on bal.) 3,500
(77,775x3/12x18/100)
81,275 81,275
Question 8

Girish Transport Ltd. purchased from NCR Motors 3 electric rickshaws costing
` 60,000 each on the hire purchase syste. m on 1.1.2013. Payment was to be
made ` 30,000 down and the remainder in 3 equal installments '
payable on
31.12.2013, 31.12.2014 and 31.12.2015 together with interest @ 10% p.a.
Girish Transport Ltd. writes off depreciation @ 20% p.a. on the reducing
balance. It paid the installment due at the end of 1st year i.e. 31.12.2013 but
could not pay next on 31.12.2014. NCR Motors agreed to leave one e-rickshaw
with the purchaser on 31.12.2014 adjusting the value of the other two
e-rickshaws against the amount due on 31.12.2014. The e-rickshaws were
.
valued on the basis of 30% depreciation annually on WDV basis.
Show the necessary Ledger accounts in the books of Girish Transport Ltd. for the
year2013, 2014, and 2015.

(8 marks in May 16 IPCC)

Solutions
Ledger Accounts in the books of Girish Transport
Ltd. E-Rickshaws Account
Year ` Year `
1.1.13 To NCR Motors A/c 1,80,000 31.12.13 By Depreciation A/c 36,000
By Balance c/d 1,44,000
1,80,000 1,80,000
1.1.14 To Balance b/d 1,44,000 31.12.14 By Depreciation 28,800
By NCR Motors
(value of 2 E-
Rickshaw after
depreciation for 2
years @ 30%) 58,800
By P & L A/c (bal.fig.) 18,000
By Balance c/d (one
E-Rickshaw less
depreciation for 2
years) @ 20% 38,400
1,44,000 1,44,000
1.1.15 To Balance b/d 38,400 31.12.15 By Deprecation A/c 7,680
By Balance c/d 30,720
38,400 38,400
NCR Motors Account

Year ` Year `
1.1.13 To Bank A/c 30,000 1.1.13 By E-Rickshaws A/c 1,80,000
31.12.13 To Bank A/c 65,000 By Interest @ 10% on
` 1,50,000 15,000
To Balance c/d 1,00,000
1,95,000 1,95,000
31.12.14 To E-Rickshaws A/c 58,800 1.1.14 By Balance b/d 1,00,000
To Balance c/d 51,200 By Interest @ 10% on
` 1,00,000 10,000
1,10,000 1,10,000
31.12.15 To Balance c/d 56,320 1.1.15 By Balance b/d 51,200
By Interest @ 10% on
` 51,200 5,120
56,320 56,320
Note: In the absence of any information regarding payment of the balance amount of ` 56,320 by Girish
Transport Ltd. to NCR Motors Ltd., it has been assumed in the above solution that the balance payment
amounting ` 56,320 had not been made till 31st Dec. 2015.
Question 9
Srikumar bought 2 cars from ‘Fair Value Motors Pvt. Ltd. on1.4.2012 on the
following terms:

Down payment 6,00,000

1st Installment at the end of first 4,20,000
year
2nd Installment at the end of 2nd 4,90,000
year
3rd Installment at the end of 3rd 5,50,000
year
Interest is charged at 10% p.a.

Srikumar provides depreciation @ 25% on the diminishing balances.

On 31.3.2015 Srikumar failed to pay the 3rd installment upon which ‘ Fair Value
Motors Pvt. Ltd.’ repossessed 1 car. Srikumar agreed to leave one car with Fair
Value Motor
Pvt. Ltd. and adjusted the value of the car against the amount due. The car taken over
was valued on the basis of 40% depreciation annually on written down basis. The
balance amount remaining in the vendor’s account after the above adjustment was
paid by Srikumar after 3 months with interest @ 20% p.a.
You are required to:
(i) Calculate the cash price of the cars and the interest paid with each
installment.

Prepare Car Account and Fair Value Motors Pvt. Ltd. Account in the books of Srikumar
assuming books are closed on March 31, every year. Figures may be rounded off to the
nearest rupee. (8 Marks Nov16 IPCC)

Solutions:- (i) Calculation of Interest and Cash Price

No. of Outstandin Amount Outstandin Interest Outstandin

installment g balance due at g balance g balance at
at the end the time at the end the
after the of before the beginning
payment installme payment
of nt of
installment installment
[1] [2] [3] [4] = 2 [5] = 4 x [6] = 4-5
+3 10/110
3 rd
- 5,50,0 5,50,000 50,000 5,00,0
00 00
2 nd
5,00,0 4,90,0 9,90,000 90,000 9,00,000
00 00
1 st
9,00,0 4,20,0 13,20,000 1,20,00 12,00,000
 00 00 0

Total cash price = `12,00,000+ 6,00,000 (down payment) = `18,00,000.

(ii) In the books of

Srikumar Cars
Account
Date Particulars ` Date Particular `
s
1.4.201 To Fair Value 18,00,00 31.3.201 By Depreciation 4,50,0
2 Motors 0 3 A/c By Balance 00
A/c c/d 13,50,0
00
18,00,00 18,00,00
0 0
1.4.201 To Balance 13,50,0 31.3.201 By Depreciation A/c 3,37,500
3 b/d 00 4
By Balance c/d 10,12,500
13,50,00 13,50,00
0 0
1.4.201 To Balance 10,12,500 31.3.201 By Depreciation A/c 2,53,125
4 b/d 5
By Fair Value Motors A/c
(Value of 1 Car taken over
after depreciation for 3
years @ 40%
p.a.) [9,00,000 - 1,94,400
(3,60,000
+ 2,16,000 + 1,29,600)]
By Loss transferred to
Profit and Loss A/c on
surrender (Bal. fig.) 1,85,288
*
By Balance c/d
½ (10,12,500-2,53,125) 3,79,687
*
10,12,500 10,12,500
* May be rounded off as 1,85, 287. In that case, the balance in Cars
account will be 3,79,688.
Fair Value Motors Pvt. Ltd.

Date Particulars ` Date Particulars `

1.4.12 To Bank (down 6,00,000 1.4.12 By Cars a/c 18,00,0
payment) 00
31.3.1 To Bank (1st 4,20,000 31.3.1 By Interest a/c 1,20,00
3 Installment) 3 0
To Balance c/d 9,00,000
19,20,00 19,20,00
0 0
31.3.1 To Bank (2nd 4,90,000 1.4.13 By Balance b/d 9,00,000
4 Installment)
 To Balance c/d 5,00,000 31.3.1 By Interest a/c 90,000
4
9,90,000 9,90,000
31.3.1 To Car A/c 1,94,400 1.4.14 By Balance b/d 5,00,000
5
To Balance c/d 3,55,600 31.3.1 By Interest a/c 50,000
5
5,50,000 5,50,000
30.6.1 To Bank (Amount 3,73,380 1.4.15 By Balance b/d 3,55,600
5 settled after 3
months)
30.6.1 By Interest a/c 17,780
5 (@ 20% on bal.)
(355600 x 20 %
x 3/12)
3,73,380 3,73,380
Question 10 Explain the special features of hire purchase agreement.

(4 Marks NOV 17 IPCC)

Solution :- Special features of Hire Purchase Agreement

1. Possession: The hire vendor transfers possession of the goods to the hire
purchaser immediately after the contract for hire purchase is made.
2. Instalments: The goods are delivered by the hire vendor on the
condition that a hire purchaser should pay the amount in periodical
instalments.
3. Down Payment: The hire purchaser generally makes a down payment i.e
an amount on signing the agreement.
4. Constituents of Hire purchase instalments: Each instalment consists partly
of a finance charge (interest) and partly of a capital payment.
5. Ownership: The property in goods is to pass to the hire purchaser on
the payment of the last instalment and exercising the option conferred
upon him under the agreement.

6. Repossession: In case of default in respect of payment of even the last

instalment, the hire vendor has the right to take the goods back without making any
compensation

Question 11 M/s Amar bought six Scooters from M/s Bhanu on 1st April, 2015 on the
following terms:

Down payment ` 3,00,0

00
1st instalment payable at the end of 1 st year ` 1,59,00
0
2nd instalment payable at the end of 2nd year ` 1,47,00
0
3rd instalment payable at the end of 3rd year ` 1,65,00
Interest is charged at the rate of 10% per 0
annum.
M/s Amar provides depreciation @ 20% per annum on the diminishing
balance method.
On 31st March, 2018 M/s Amar failed to pay the 3rd instalment upon which M/s
Bhanu repossessed two Scooters. M/s Bhanu agreed to leave the other four
Scooters with M/s Amar and adjusted the value of the repossessed Scooters
against the amount due. The Scooters taken over were valued on the basis of
30% depreciation per annum on written down value. The balance amount
remaining in the vendor's account after the above adjustment was paid by M/s
Amar after 5 months with interest@ 15% per annum.
M/s Bhanu incurred repairing expenses of ` 15,000 on repossessed scooters
and sold scooters for ` 1,05,000 on 25th April, 2018.
 You are required to :
(1) Calculate the cash price of the Scooters and the interest paid with each
instalment.
(2) Prepare Scooters Account and M/s Bhanu Account in the books of M/s Amar.
(3) Prepare Goods Repossessed Account in the books of M/s Bhanu.

(10 marks in May 19 Inter)

Solutions:- (i) Calculation of Interest and Cash Price

No. of Outstandi Amount Outstandi Interest Outstandin

installmen ng due at the ng g balance
ts balance time of balance at at the
at the installment the end beginning
end after before the
the payment
payment of
of installmen
installme t
nt
[1] [2] [3] [4] = 2 [5] = 4 x [6] = 4-5
+3 10/110
3rd - 1,65,00 1,65,000 15,000 1,50,000
0
2nd 1,50,000 1,47,00 2,97,000 27,000 2,70,000
0
1st 2,70,000 1,59,00 4,29,000 39,000 3,90,000
0
Down 3,00,000
payment
T otal of interest and T otal cash price 81,000 6,90,000
(ii) In the books of M/s Amar
Scooters Account

Date Particulars ` Date Particulars `

1.4.201 To Bhanu A/c 6,90,0 31.3.2016 By Depreciation A/c 1,38,000
5 00
By Balance c/d 5,52,000
6,90,000 6,90,000
1.4.201 To Balance 5,52,0 31.3.2017 By Depreciation A/c 1,10,400
6 b/d 00
Balance c/d 4,41,600
5,52,000 5,52,000
1.4.201 To Balance 4,41,6 31.3.2018 By Depreciation A/c 88,320
7 b/d 00
By M/s Bhanu a/c 78,890
(Value of 2 Scooters
taken over)
 By Profit and Loss A/c 38,870
(Bal. fig.)
By Balance 2,35,520
c/d
4
(4,41,600 -
4,41,60 88,320) 4,41,600
0 6
(ii) M/s Bhanu Account

Date Particulars ` Date Particulars `

1.4.15 To Bank (down 3,00,0 1.4.15 By Scooters 6,90,0
payment) 00 31.3.16 A/c By Interest 00
31.3.16 To Bank (1st A/c 39,00
Installment) 1,59,0 0
To Balance 00
c/d
2,70,0
00
7,29,000 7,29,000
31.3.1 To Bank (2 nd 1,47,0 1.4.2016 By Balance 2,70,0
7 Installment) 00 31.3.201 b/d By 00
To Balance c/d 7 Interest A/c 27,00
1,50,0 0
00
2,97,000 2,97,000
31.3.1 To Scooter A/c 78,8 1.4.2017 By Balance 1,50,00
8 To Balance c/d 90 31.3.201 b/d By 0
(b.f.) 86,11 8 Interest A/c 15,00
0 0
1,65,000 1,65,000
31.8.1 To Bank 91,492 1.4.2018 By Balance b/d 86,11
8 (Amount 31.8.201 By Interest A/c (@ 15 0
settled after 5 8 % on bal.)
months) (86,110 x 5/12 x 5,38
15/100) 2
91,492 91,492

(iii) In the Books of M/s

Bhanu Goods
Repossessed A/c

Date Particulars ` Date Particulars `

31.3.18 To Amar A/c 78,890 31.3.201 By Balance c/d 78,890
8
78,890 78,890
1.04.201 To Balance b/d 78,890 25.4.201 By Bank (Sale) 1,05,000
8 8
25.4.201 To Repair A/c 15,000
8
25.4.201 To Profit & Loss 11,110
8 A/c
1,05,000 1,05,000
Question 12 On 1st April, 2017, Mr. Nilesh acquired a Tractor on Hire purchase from Raj
Ltd. The terms of contract were as follows:

(i) The Cash price of the Tractor was ` 11,50,000.

(ii) ` 2,50,000 were to be paid as down payment on the date of purchase. The
Balance was to be paid in annual instalments of ` 3,00,000 plus interest at the
end of the year.
(iii) Interest chargeable on the outstanding balance was 8% p.a.
(iv) Depreciation @ 10% p.a. is to be charged using straight line method.
Mr. Nilesh adopted the Interest Suspense method for recording his Hire purchase
transactions.
You are required to :

Prepare the Tractor account, Interest Suspense account and Raj Ltd.’s account in the books of
Mr. Nilesh for the period of hire purchase. (8 marks NOV 20 INTER)

Solutions :- Tractor Account

Date Particulars ` Date Particulars `

1.4.201 To Raj 11,50,000 31.3.201 By Dep. 1,15,000
7 8
_______ By Balance c/d 10,35,000
11,50,000 11,50,000
1.4.201 To Balance 10,35,000 31.3.201 By Dep. 1,15,000
8 b/d 9
________ By Balance c/d 9,20,000
10,35,000 10,35,000
1.4.201 To balance 9,20,000 31.3.202 By Dep. 1,15,000
9 b/d _______ 0 By Balance c/d 8,05,000
9,20,000 9,20,000
H.P. Interest Suspense Account

Date Particulars ` Date Particulars `

1.4.2017 To Raj Ltd. A/c 1,44,00 31.3.201 By Interest A/c 72,000
(W.N.) 0 8

31.3.201 By Balance c/d 72,000

8
1,44,00 1,44,000
0
1.4.2018 To Balance b/d 72,00 31.3.201 By Interest A/c 48,000
0 9
 31.3.201 By Balance c/d 24,000
9
72,000 72,000
1.4.2019 To Balance b/d 24,000 31.3.202 By Interest A/c 24,000
0
Total Interest = ` 72,000 + ` 48,000 + ` 24,000 = `
1,44,000

Raj Ltd. Account

Date Particulars ` Date Particulars `

1.4.2017 To Bank A/c 2,50,000 1.4.2017 By Tractor A/c 11,50,000
31.3.2018 To Bank A/c 3,72,000 By H.P. 1,44,000
Interest
Suspense A/c
To Balance c/d 6,72,000
12,94,000 12,94,000
31.3.2019 To Bank A/c 3,48,000 1.4.2018 By Balance b/d 6,72,000
To Balance c/d 3,24,000 _______
6,72,000 6,72,000
31.3.2020 To Bank A/c 3,24,000 1.4.2019 By Balance b/d 3,24,000

Question 13

Jai Ltd purchased a machine on hire purchase basis from KM Ltd. on the following terms:

(a) Cash price ` 1,20,000.

(b) Down payment at the time of signing the agreement on 1-1-2016, ` 32,433.

(c) 5 annual instalments of `23,100, the first to commence at the end of twelve
months from the date of down payment. Rate of interest is 10% p.a.
Your are required to calculate the total interest and interest included in each
instalment. Also prepare the Ledger Account of KM Ltd. in the books of Jai Ltd.

(8 Marks Jan 2021 INTER)

Solutions :- Calculation of interest

Tot Interest in each Cash price in

al instalment each
(`) (1) instalment
(2
)
 Cash Price 1,20,000
Less: Down Payment (32,433) Nil ` 32,433
Balance due after down 87,567
payment
Interest/Cash Price of 1st - ` ` 23,100 –
87,567x10/100
Instalment = ` 8,757 =
8,757 ` 14,343
Less: Cash price of 1st (14,343)
instalment
Balance due after 1st instalment 73,224
Interest/cash price of 2nd - ` 73,224x ` 23,100 -
instalment 10/100
= ` 7,322=
` 7322 ` 15,778
Less: Cash price of 2nd (15,778)
instalment
Balance due after 2nd 57,446
instalment
Interest/Cash price of 3rd - ` 57,446 x ` 23,100 -
instalment 10/100
= ` 5745=
` 5745 ` 17,355
Less: Cash price of 3rd (17,355)
instalment
Balance due after 3rd 40,091
instalment
Interest/Cash price of 4th - ` ` 23,100 -
instalment 40,091x10/100
=
` 4,009 ` 4,009=
` 19,091
Less: Cash price of 4th (19,091)
instalment
Balance due after 4th 21,000
instalment
Interest/Cash price of 5th - `21,000 ` 23,100 –
instalment x10/100
= ` 2,100 ` 2,100=
21,000
Less: Cash price of 5th (21,000)
instalment
Total Nil ` 27,933 `1,20,000

Total interest can also be calculated as follow:

(Down payment + instalments) – Cash Price = ` [32,433 +(23,100 x 5)] – `1,20,000 =

` 27,933

KM Ltd. Account in the books of Jai Ltd

Date Particulars ` Date Particulars `

1.1. To Bank A/c 32,43 1.1.201 By Machine 1,20,00
2016 3 6 A/c 0
31.12.2016 To Bank A/c 23,100 31.12.2016 By Interest A/c 8,757
31.12.2016 To Balance c/d 73,224
1,28,757 1,28,757
31.12.2017 To Bank A/c 23,100 1.1.2017 By Balance b/d 73,224
31.12.2017 To Balance c/d 57,446 31.12.2017 By Interest A/c 7,322
80,546 80,546
31.12.2018 To Bank A/c 23,100 1.1.2018 By Balance b/d 57,446
31.12.2018 To Balance c/d 40,091 31.12.2018 By Interest A/c 5,745
63,191 63,191
31.12.2019 To Bank A/c 23,100 1.1.2019 By Balance b/d 40,091
31.12.2019 To Balance c/d 21,000 31.12.2019 By Interest A/c 4,009
44,100 44,100
31.12.2020 To Bank A/c 23,100 1.1.2020 By Balance b/d 21,000
____ 31.12.2020 By Interest A/c 2,100
23,100 23,100