92772Hire Purchase

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MBA Class of 2012, Advanced Accounts, Session 1&2, December 9, 2011

Module II: Hire Purchase System/Basic calculations When all information’s are given: 1. A Transport company purchased vehicle form Vendor on HP Agreement, paying cash down Rs. 1,00,000 and pay further installments of Rs. 1,00,000 at the end of each year. The Cash price of asset is Rs. 3, 72,500 and vendor charges interest @5% p.a. Transport Company writes off depreciation @10% p.a. as per WDV. Make necessary accounting records. 2. The company agreed to purchase wagons from the Vendor on the HP system for Rs. 4, 60,000. Rs 60,000 were paid when wagons acquired on 1st January, 2004 and the balance was to be paid by annual installments of Rs. 80,000 plus interest at 5% p.a .Make necessary accounting records. When Cash Price is not given: (a) Annuity Method (b) Back Calculation Method 3. A man bought a machine from Hire Vendor on HP method. He paid Rs. 60,000 cash down, Rs 64,000 at the end of the first year, Rs. 80,000 at the end of the second year and Rs. 88,000 at the end of the third dear. The interest of the cash price is 10% per annum. Make necessary accounting records. On 1st January, 2001 a Railway Company buys on Hire-Purchase System from the Hire vendor some moving machine for Rs.2,55,000 payable by three equal installments combining principal and interest, the later being a normal rate of 5% p.a. Calculate the amount of annual installment. (The PV of an annuity of one rupee for three years at 5% is Rs. 2.72325)

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When Rate of Interest is not given: (a) Product Method (b) Inverse Progression Method. 5. One machine whose cash price is Rs. 8, 18,000 is purchased for Rs. 9,00,000 on HP system. Payment of HP price is made after the date of purchase in the flowing manner: At the end of 4 months Rs. 1,00,000, at the end of 6 months Rs. 1,50,000, at the end of 9 months Rs. 3,00,000 and at the end of 12 months Rs. 3,50,000. Machine is purchased on 1st January, 2008 and the date of payment of each installment is counted from this date. The cash price of machine is Rs. 3, 74,000 on 1st January 2004. Its hire purchase price is Rs. 50,000. This hire purchase price is paid in five installments in the following manner: Rs. 1,50,000 at the end of first year, Rs. 1,20,000 at the end of second year, Rs 1,00,000 at the end of third year, Rs.80,000 at the end of fourth year, Rs. 50,000 at the end of fifth year. Prepare Vendor’s account

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