Namaste All,
I am unable to reason why reversing of loading is done for "H.P.Stock A/c"(both opening & closing) and on the "Goods Sent on Hire Purchase A/c" in H.P Trading Account.
Also why loading is not reversed yo "Installments due A/c" ? (is it do to it having characteristic of Trade Recievable).
If my query is replied in context with Accounting Concept of Prudence in addition with reference with Accounting Standard, i would be grateful.
1. 'H.P. Stock A/c' represents instalments not due from the Hire Purchaser. Legally Hire Purchaser can return goods anytime and not pay the instalments not due, hence that is treated as stock and stock as you know is always on cost. This is the reason why load is reversed both from opening and closing 'HP Stock A/c'.
2. Unloading is done on 'Goods sent on Hire Purchase' to bring it to its cost price. Hire Purchase Trading A/c is debited with 'GSHP A/C' and is credited with Cash collected, Instalments Due and HP Stock A/c. If the credit side total is higher, then the difference represents profit. In unloading was not done, the profit figure would have been wrong.
3. Instalments Due A/c represents debtors and hence are shown on due value. Profit included in instalment is legally payable by the Hire Purchaser, hence unloading of margin is not done.
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