sivaram (Asst Mgr-Taxation) (6918 Points)
14 February 2011Dear 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
Ramanan Krishnamoorthy
(Chartered Accountant)
(158 Points)
Replied 14 February 2011
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)
Replied 14 February 2011
Prachi Srivastava
(Finance)
(368 Points)
Replied 10 December 2014
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.
| Assets | S Ltd | T Ltd |
|---|---|---|
| Plant and Machinery | 2,40,000 | 135,000 |
| Stock | 1,20,000 | 36,400 |
| Sundry Debtors | 44,000 | 40,000 |
| Bills Receivable | 15,800 | - |
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
CAclubindia
