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Regarding reversing loading in hire purchase

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Vinayak

IPCC

119 Points Posted on 04 December 2012

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 to "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.

Request Note for Moderators: I am eagerly waiting for reply on this topic, since i didn't receive reply for this topic posted under " Accounting Entries"(posted a few days ago), i am posting the same here too, in anticipation of reply. Please Excuse/pardon me for the same .

Replies (1)

CA Hareesh

1647 Points Posted on 11 December 2012

Let us first be clear about the term LOADING.. i.e nothin but actually the PROFIT element... therefore now if you the prudence principle,

take these two situations : When will you recognise profit on these two??

1. on actual sale to customers? or on

2. simple stock transfer??

Obviously on actual sale only.. therfore Instalments Due A/c actually like a sales account.. by posting an entry in HP stock a/c you are doing nothing but a mere stock transfer to the hire purchaser. therefore you cannot claim profit for that portion for which instalments were not yet due.. its like your stock lying on him. so what will you do in norml final accounts?

you will book stock at cost only right?? likewise here also you are removing the loading element and bringin it back to the cost level itself.. whereas if the instalment is due, its like the sale is actually made.. so no need to remove the loading elemen therby claiming the profit..