Hire Purchase

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.

Hi All,

I am trying to do a problem based on the above concept. Please help me in that.

Extract from Balance sheet( S Ltd acquiring T ltd. COnsolidated Financial Statement to be prepared.

Instalments due- Rs.5,000

Instalments not due- Rs.2,000

HP Stock Reserve-Rs.400

In solution of this problem, intercompany adjustments have been done under following heads-

1. Intercompany Owings (Debtors and creditors)

2. Stock

3. Plant and Machinery

Can anyone please help me in -

a- What adjustments should be done under above heads for Hire purchase.

b- Reasons for those adjustments

Regards,

Prachi