Hire Purchase

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sivaram

Asst Mgr-Taxation

6918 Points Joined April 2009

Dear Students

Can anyone explain with Numerical examples the adjustments to be carried out ,Disclosure and what these terms actually mean in a Hire Purchase Transaction?

1.Instalments Due

2.Instalments Not Due

3.Hire Purchase Stock Reserve

Thanks in advance

Replies (3)

Ramanan Krishnamoorthy

Chartered Accountant

158 Points Joined March 2007

Hi Mr.Sivaram

I will explain instalment due, instalment not due, stock reserve

Baisics:

Generally in hirepurchase we make a sale and collects the sale amount periodically (fixed time) along with interest. Ownership of goods will be trnsfd only at the end of the last instalment

Instalment Due:

It is similar to Sundry debtors. As on reporting date, instalment due represents amount payable by hire purchaser. So instalment due account should show the due amount with contains both principal + interest

Instalment not Due:

It is similar to Closing Stock. As on reporting date, instalment not due represents amount payable by hire purchaer but it is not due on reporting date. So instalment due account should treated as similar to closing stock.
So we should value the instalment not due account at principal i.e not including the interest component.

So as on reporting date interest portion of Instalment not Due account shoule be trnsfd to HP Stock Reserve account.

HP Stock resevere is an account similar to trading account of normal business. At the time of HP Sale diff between HP Sale Price & Cash price which represents interest will be parked in HP Stock Reserve. At the end of financial year, the interest component on instalment not due account will be trnsfd from that account to HP Stock Reserve.

sivaram

Asst Mgr-Taxation

6918 Points Joined April 2009

Thanks a lot Mr Ramanan Krishnamoorthy -Wonderful explanation you have given Simply i can say Beautiful and thanks for making me to digest this adjustment