QUESTION FOR PRACTICE
Q.1. M/s Raghavan Gupta Transport Co. purchased a truck on hire-purchase system for Rs. 5,00,000 on April 1, 1989 payment to be made Rs. 2,00,000 down and three annual instalments of Rs. 1,50,000 each, payable on March 31, 1990, March 31, 1991 and March 31, 1992. Rate of interest is charged @ 25% per annum by the vendor, M/s. Deepa Motors. The buyer depreciates the truck at 20 per cent per annum on written down value method.
Because of financial difficulties, M/s. Raghavan Gupta Transport Co. after having paid down payment and first installment at the end of 1st year (i.e., on March 31, 1990), could not pay second installment and the vendor took possession of the truck. Vendor, after
spending Rs. 15,000 on repairs of the asset, sold it away for Rs. 3,25,000 on April 10, 1991.
Open ledger account in the books of both the parties.
[Ans. (First method) Trucks Account : By Profit & Loss A/c (balancing figure) : 38,750.]
Q.2. Rapid Engineering Works sold to Pratap Gupta Industries a machine of the cash value of Rs. 31,360 on hire-purchase basis on 1st April, 1995. A sum of Ps. 9,000 was paid at the time of delivery. The balance was payable in three equal annual instalments of Rs. 9,000 each payable on 31st March of every year. Interest was charged @ 10% per annum. The purchaser charged 10% depreciation per annum on the diminishing balances of the machine.
Pratap Gupta Industries failed to pay the installment due on March 31, 1997. Rapid Engineering Works obtained the permission of the court to repossess the machine as a result of default by the purchaser and having completed all the statutory requirements took possession of the machine on May 31, 1997. Prepare the necessary ledger accounts in the books of hire-purchaser.
[Ans. Machine Account : By Profit & Loss A/c (Loss) – Bal. Fig. : 8,246.]
Q.3. Ramu Gupta purchased four machines of Rs. 14,000 each by the Hire purchase system.4nc hire-purchase price for all the four machines was Rs. 60,000 to be paid as Rs. 15,000 down and three installments of Rs. 15,000 each at the end of each year.
Depreciation is written off at 10% per annum on the straight line method. Interest is charged at 5% p.a.
Down payment and first installment were paid. On the default, vendor took possession of three machines leaving one machine with buyer. The machines were taken by the vendor at a depreciated value of 20% per annum under written down value method. Vendor spent Rs. 1,200 on repairs and sold the three machines for Rs. 35,000.
Give the ledger accounts in the books of Ramu Gupta and Hire Vendor
[Ans. Value of machine left with the buyer at the end of 2nd year : 11,200. Value of machines taken away at the end of 2nd year.: 26,880.]
Q.4. Umesh Gupta Transport Ltd., purchased from Delhi Motors 3 tempos costing Rs. 50,000 each on the hire purchase system on 1.1.1999. Payment was to be made Rs. 30,000 down and remainder in 3 equal annual installments payable on 31.12.1999, 31.12.2000 and 31.12.2001 together with interest @ 9%. Umesh Gupta Transport Ltd., writes off depreciation at the rate of 20% on the diminishing balance. It paid the installment due at the end of first year but could not pay the next on 31.12.2000. Delhi Motors agreed to leave one tempo with the purchaser on 1.1.2001 adjusting the value of the other two tempos against the amount due on 1.1.2001. the tempos were valued on the basis of 30% depreciation annually.
Show the necessary accounts in the books of the purchaser for all the three years.
[Ans. Tempos Account. By Profit & Loss A/c (Loss & on default) : 15,000. Machine Account. By Profit & Loss A/c (Loss) : 17,850.]
Q.5. Vijay Gupta Transport Ltd. purchased from Manish Motors 3 Tempos costing Rs. 1,00,000 each on hire-purchase basis on 1-1-1995. 20% of the cost was to be paid down and the balance in 3 equal annual instalments together with interest @ 9% at the end of each year. Vijay Gupta Transport Ltd. paid the instalment due on 31st December, 1995, but could not pay thereafter. Manish Motors agreed to leave one tempo with the purchaser on 1-1-1996 adjusting the value of the other two tempos against the amount due on that date. The tempos recovered were valued on the basis of 30% depreciation annually. Vijay Gupta Transport Ltd. charges depreciation on tempos @ 20% on diminishing balance method.
M/s Manish Motors incurred Rs. 10,000 on repairs of tempos repossessed and resold them at a profit of 5% on total cost.
Write up necessary ledger Accounts in the books of both parties giving effect to the above transactions.
[Ans. Value of Tempo left with the buyer at the end of first year. : Rs. 80,000. Value of Tempos taken away at the beginning of second year. : 1,40,000. Asset (Tempo) Account. : By Profit & Loss A/c – Bal. fig. : 20,000.]