TOPIC 7:HIRE PURCHASE

CHAPTER 2 HIRE PURCHASE ACCOUNTS

2.1    The Nature Of Hire Purchase Under Hire Purchase Act 1967 (Amendment) And The Islamic Perspective

2.1.1      Definition Of Hire Purchase

Section 2(1) Hire Purchase Act 1967 : The agreement which includes hiring of goods and at the same time giving an option to buy. It is a business transaction where by a seller allows a buyer to buy asset(s) by installments, based on interest rate charged.

 

Characteristics of Hire Purchase

The transaction is based on the rules of Hire Purchase Act 1967 and Hire Purchase Act (amendment) 1976.

(i)      Right of the goods is still belonging to seller. The rights will be transferred at the end of the installment period. The owner will have a right to confiscate the assets if installment is not been paid by the buyer.

(ii)    Interest rate will be charged on any balance from the payment in certain agreed period. The purposes of the interest rate are for additional administrative/management expenditure and to protect the goods from risk of damaged.

(iii)   A buyer will be informed on a cash price but if he/she wants to buy on hire purchase, installment will be made for a certain agreed period.

(iv)  Deposit will be charged when the agreement is signed.

(v)    Claim of goods. A buyer is assumed to hire the goods. If he/she intends to return/end the agreement, he/she can do so with condition that total installments will not be returned back. However, balances of the installment not need to be paid.

 

Hire Purchase Documentation

 

When entering hire purchase contract, normally the procedure of the hire purchase agreement can be described as follows:

·         When the customer agrees to buy an asset under a Hire Purchase Contract, he/she is    required to complete the Hire Purchase Application Form, which indicates all the particulars about the customer.

·         The Finance Company will set an interview with the customer to confirm the entire particulars stated in the Hire Purchase Application Form.
 

·         If the Finance Company is satisfied with the application, the customer will have to receive and complete following details:

i.              Offer Letter Form

ii.             Acceptance Memorandum

iii.            Letter of Statutory Acknowledgement of Customer/ Guarantor

iv.           Hire Purchase Agreement

v.            Stamp duty

vi.           Invoice to finance company

viii.         Registration card for the original asset

ix.           Cover Note, Copy of Road Tax

 

The Terms Used

(i)      Cash price                                   =             price of asset paid at once

(ii)    Hire purchase price                 =             cash price + interest

(iii)   Installment                                 =             schedule payment during required period

(iv)  Deposit                                        =             down payment / initial payment

(v)    Interest                                        =             perquisite / profit or privilege given

(vi)  The buyer/user                        =             a person who agreed to buy or to accept good(s)

from the dealer based on hire purchase agreement

(vii) The dealer                                  =             a person who sells good(s) based on hire purchase

agreement

2.1.2          Differences Between Hire Purchase And Credit Sales

 

	HIRE PURCHASE	CREDIT SALES
1.   Right or ownership	Belongs to seller/dealer as long as installment not yet settled	Belongs to buyer
2.   Repossess	The seller has a right to repossess if there has been 4 successive defaults of payments	Cannot taking possession of goods but can sue the buyer in court
3.   Product type	Long term usage	Short term usage
4.   Interest	Have interest charge	No interest charge but have discount
5.   Price	More expensive	Cheap
6.   Deposit	Chargeable	None
7.   Act	Hire Purchase Act 1967	None
8.   Risk	High	Low
9.   Installment period	Long term	Short term
10. Value of installment	Fixed	Variable
11. Agreement	Yes	No

 

2.1.3      Differences Between Conventional And Islamic Approach In Hire Purchase

 

Bai’ Bitaman Ajil refers to the concept of hire purchase in Islamic Financial Instrument, which is allowed under Syariah. It is a suspense monthly installment plan for the customers who possess an asset.

 

It seems to be similar to Hire Purchase Contract under the conventional financial instrument, but we can examine their differences as follows:

 

	Bai’ Bitaman Ajil	Hire Purchase Contract
a) Provision in the Act	Subjected to Bai’ Bitaman Ajil Agreement	Subjected to HP Act 1967.
b) Legal title on asset	Stated under clause 4 under Bai’ Bitaman Ajil Agreement	The legal title to the asset does not pass on to the purchaser until ha has paid the final installment and exercise his option to purchase
c) Term of interest	If the purchaser unable to make payment or delays the monthly installment, the cost of delay is called wage.	The purchaser will be charged a certain percentage of interest because of delayed payment
d) Sales Price	Customer will receive the cost of HP as the sale price between the finance company and customer. Finance company as a part of the buyer with the original seller	The cost of HP includes the cost price and interest charged to the customer
e) Aqad (intention)	Aqad on purchase (which is compulsory in Islamic Method) between customer and finance company is subjected to sale price	Aqad is not compulsory

 

2.2          Hire Purchase Interest Allocation

2.2.1          Description Of Hire Purchase Interest Allocation
 

When each payment is made on a hire purchase contract, it will consist of the following :

(i)                  Part of the installment will be paying off part of the amount owing for the cash price of the asset

(ii)                The other part of the installment will be for the interest that has occurred for the period of time.
 

2.2.2      Formula / Method In Calculating The Hire Purchase Interest

·         Under the hire purchase contract, the purchase price consists of two elements that are the cash cost price and the hire purchase interest.

·         These two elements make up the hire purchase price but which must be Accounted for separately.

·         The hire purchase interest must be written off as an expense over the life of the contract.

·         There are THREE methods in calculating Hire Purchase Interest:

 

a)      Sum of Digit (Rule of 78) (SOD)

b)      Other methods

i.         Straight Line Method (SLM)

ii.       Reducing Balance Method (RBM)

 

·         The basic formula of calculating total hire purchase interest is as follow:

 

 

HIRE PURCHASE PRICE = TOTAL INSTALLMENT + DEPOSIT @ HIRE PURCHASE PRICE = CASH PRICE + HP INTEREST

                                                                           

HP INTEREST = HP PRICE - CASH PRICE

Example 1  :  Formula of calculating hire purchase interest

En. Razi bought a radio on 1/4/2012 from Syarikat Abu Sdn Bhd. The cash price is RM8,000. Deposit RM2,000 and the balance will be paid at the end of every month with installment of RM600 for a year. The depreciation is 12% per annum.

 

Answer:

HP price                                                                                  =             Total installments + deposit

                                                                                                                =             (12 x RM600) + RM2,000

                                                                                                                =             RM9,200

 

Hire Purchase Interest Suspense (HPIS)                            =             HP price – Cash price

                                                                                                                =             RM9,200 – RM8,000

                                                                                                                =             RM1,200

·         The commonly used methods of apportioning hire purchase interests are:

                a)            Sum of the Years’ Digit Method (SYD)

-          Number the installment, given the highest digit to the first installment and the digit 1 to the last installment;
 

-          Add up the digits;

-          The interest proportion to each Accounting period is the:

Digit given to the installment     X                      Interest

                                   Sum of digits

Example 2 : Method of calculating HP Interest using SYD

 

Under a Hire Purchase Agreement, an asset with a cash price of RM2,500 is to be paid by a deposit of RM500 and a 5 monthly installment starting from January. The interest is RM400.

                                The apportioning of hire purchase interest is as follows:

                                Step 1:

                                Cash price                                                           RM2,500

                                -) Deposit                                                                RM500             

                                Outstanding liability                                        RM2,000

                                Interest                                                                   RM400             

                                Total installment                                              RM2,400

 

Step 2:

The installments are numbered as follows:

January                5

February              4

March                   3

April                       2

May                       1

                                                           15

 

Step 3:

Apportion the interest according to each Accounting period:

January                 5/15 x RM400     =             RM133

February              4/15 x RM400     =             RM107

March                   3/15 x RM400     =               RM80

April                       2/15 x RM400     =               RM53

May                       1/15 x RM400     =               RM27 

                                                                                                           RM400 

                b)            Other methods

                                i.             Straight Line Method (SLM)
 

  -         under this method, the interest is deemed to accrue evenly over the period of the  Hire Purchase Agreement.

                                Example 3  :  Method of calculating HP Interest using SLM

Under a Hire Purchase Agreement, an asset with a cash price of RM2,500 is to be paid by s deposit of RM500 and a 24 monthly installments of RM100.

 

                                The apportioning of hire purchase interest is as follows:

 

                                Cash price                                                           RM2,500

                                -) Deposit                                                                RM500             

                                Outstanding liability                                          RM2,000

                                Interest                                                                    RM400             

                                Total installment                                                RM2,400

 

                                Therefore;

                                Installment/ month        =             RM2,400/24        =             RM100

                                Interest/ month              =             RM400/24           =             RM16.70

 

                                ii.            Reducing Balance Method (RBM)

 

-              under this method, simple interest is calculated based on outstanding debt after each installment becomes payable.

Example 4 :  Method of calculating HP Interest using RBM

Under the Hire Purchase Agreement, an asset with a cash price of RM2,500 is to be paid by a deposit of RM500 and 4 annual installments of RM631. Interest rate is at 10% per annum.

 

The apportioning of Hire Purchase is as follows:

 

Cash price                                                         RM2,500

-) Deposit                                                            (RM500)

Outstanding liability                                        RM2,000

+) 10% Interest                                                     RM200             

                                                                                                          RM2,200

-) 1^st installment                                                (RM631)

                                                                                                          RM1,569             

+) 10% Interest                                                     RM157             

                                                                                                          RM1,726

-) 2^nd installment                                              (RM631)

                                                                                                          RM1,095

+) 10% Interest                                                     RM110             

                                                                                                           RM1,205

-) 3^rd installment                                               (RM631)

                                                                                                             RM574

+) 10% Interest                                                      RM57              

                                                                                                            RM631

-) 4^th installment                                               (RM631)

 

-              Therefore, the apportioning for the interest is as follows:

1^st year =             RM200

2^nd year =             RM157

3^rd year =             RM110

4^th year =                RM57

                                                                          RM524

2.3      The Records Of Hire Purchase

2.3.1          Preparation Of Accounts In A Purchaser’s (Buyer) Book

Journal entry

a.                   To record total debts at hire purchase price

Dt           Asset

                Ct            Creditor

(asset recorded at cash price)

 

Dt           Hire Purchase Interest Suspense (HPIS) Account

                Ct            Creditor

(declare the HPIS as expenses )
 

b.                  To record deposit and installments paid

Dt           Creditor              

                Ct            Bank / Cash

c.                   To transfer interest expense to Profit and Loss Account

Dt           P&L       

                Ct            HPIS

 

d.                  In the Balance Sheet, creditors balance was the installments that have not been paid. The HPIS balance was a payment for the following period and need to be deducted from creditors balance to get the value of current liability.

 

Asset A/C

Creditor	X	Balance c/d	X

 

HP Creditor A/C

Bank: deposit	X	Asset	X
Bank: 1st installment	X	Hire Purchase Interest Suspense (HPIS)	X
Bank: 2nd installment	X
Balance c/d	X
	XX		XX

 

Hire Purchase Interest Suspense (HPIS) A/C

HP Creditor	X	P&L	X
		Balance c/d	X
	XX		XX

 

Provision for depreciation A/C

Balance c/d	X	P&L	X
	XX		XX

 

 

Statement of Financial Position (extract) as at ……………

Non Current Assets
Asset	X
(-) Prov. for depreciation	X
	XX
Current Liabilities
Creditor	X
(-) HPIS	X
	XX

 

2.3.2          Preparation Of Accounts In A Seller’s  Book

 

Journal entry

 

a.                   Upon signing up HP agreement

Dt           Debtor                                 x

Ct            HP Sales                               x

 

b.                  Receipt of deposit / installment

Dt           Cash / Bank                        x

Ct            Debtor                                 x

 

c.                   At the end of the year, Gross Profit is to be calculated:

1.                   Determine the gross profit on sales

2.                   Unrealized profit

3.                   Realized profit

 

d.                  Unrealized profit is deducted from the debtor in the SOFP under Current Asset

 

 

Debtor’s A/C

Hire Purchase Sales (Hp Price)	X	Bank : Deposit	X
		Bank: Installment	X
		Balance c/d	X
	Xx		Xx

 

Hire Purchase Sales A/C

Trading A/C (SOCI)

X

Debtors

X

 

Statement of Comprehensive Income (extract) for the year ended …….

Sales			XXX
(-) Cost Of Goods Sold			(XXX)
Unrealised profit			(XXX)
Realised profit			XXX

Statement of Financial Position (Extract) as at …….

Current Assets
Debtor			XXX
(-) Provision for unrealized profit			(XXX)
			XXX

HP profit                                              =             HP Sales – Cost of Goods Sold (COGS)

 

Unrealized profit                              =             Outstanding installment               x   Hire purchase profit

                                                                                   Hire purchase sales

 

Realized profit                                   =             HP profit – Unrealized profit

 

Example 5 (Seller’s Book) :

Autoworld sold a car to Peter on 1 July 2012. The cash price was RM25,000. Under the HP agreement, Peter was required to pay deposit of RM5,000 upon signing up the agreement. The balances together with the interest of 20% per annum need to be paid by 12 monthly installment beginning on 31 July. The cost of the car was RM15,000.

a)                  Calculate the HP profit on 31 Dec 2012

HP profit                              =             HP sales – Cost of goods sold

                                              =             29,000 – 15,000

                                              =             RM14,000

b)                  Unrealized profit              =             Outstanding installment  x  HP profit

           HP sales

                                                              =             6 x 2,000  x  14,000

                                                                                29,000

                                                              =             RM5,793

c)                   Realized profit                   =             HP profit – Unrealized profit

   =             RM14,000 – RM5,793

   =             RM8,207

 

Debtor’s A/C

2012		2012
1/7     HP Sales	29,000	1/7      Bank : deposit	5,000
		31/7    Bank: 1st Installment	2,000
		31/8    Bank: 2nd Installment	2,000
		30/9    Bank: 3rd Installment	2,000
		31/10  Bank: 4th Installment	2,000
		30/11  Bank: 5th Installment	2,000
		31/12  Bank:6th Installment	2,000
		Balance c/d	12,000
	29,000		29,000
2013
1/1   Balance b/d	12,000

 

Hire Purchase Sales A/C

31/12/12   Trading A/C (SOCI)

29,000

1/7/12   Debtor

29,000

 

 

Statement of Comprehensive Income (extract)  for the year ended 31 December 2012

Sales			29,000
(-) Cost Of Goods Sold			(15,000)
Unrealised profit			(5,793)
Realised profit			8,207

 

Statement of Financial Position (Extract) as at 31 December 2012

CURRENT ASSETS
Debtor			12,000
(-) Provision for unrealized profit			(5,793)
			6,207

 

2.4      Accounting Procedures For Early Termination

 

2.4.1          Illustration of Accounting Procedures for Early Termination

 

• The buyer can terminate the hire purchase agreement earlier by paying balance earlier than the last installment date.
• However, the buyer may also be forced to terminate the agreement earlier if the asset is scrapped due to its use.
• Upon the termination of a hire purchase agreement, a number of entries should be made in the books.
• The Accounting treatments differ, depending on which method is used to record hire purchase interest.

 

Summary of procedures

 

Dr  HP creditor        Cr Bank	With the last payment to the HP creditor
Dr  HP interest       Cr HP creditor	With the HP interest and penalty charges for early termination of the hire purchase contract
Dr  Disposal       Cr Asset	With the cost of the asset
Dr  Provision for depreciation        Cr Disposal	Transferring related depreciation provision to the disposal Account
Dr  Bank       Cr Disposal	With the insurance claim for the disposal (if any)
Dr  Profit and Loss       Cr Disposal	With the loss on the disposal (Reverse the entries for a profit on disposal)

2.4.2          Accounting Treatment For Early Termination Due To :

 

a.       Default in Installment Payment

 

·         Under the Hire Purchase Agreement, if the buyer failed to pay installment in a period of 3 months, the seller will have a right to confiscate the goods. However, the seller needs to send a notice before he is able to do so.

·         In Accounting terms, all Accounts related to the asset such as Assets Account, Creditor Account, Hire Purchase Interest Suspense Account and Provision For Depreciation Account need to be closed and the balance will be transferred to the Asset Disposal Account. The balance left (which is the installment that not yet paid) is considered as the selling price of the asset.

 

Account Format 

Asset A/C

Balance b/d

x

Asset disposal

X

 

 

 HP Creditor A/C

Asset disposal

x

Balance b/d

X

 

 

Hire Purchase Interest Suspense (HPIS) A/C

Balance b/d

x

Asset disposal

X

 

 

Provision for depreciation A/C

Asset Disposal Account

x

Balance b/d

X

 

Asset disposal A/C

Asset	x	Creditor	x
HPIS	x	Prov. for depreciation	x
P&L: Profit on disposal	x
	xx		xx

 

 

Example 6:

 The followings are Account balances in the book of buyer on 31 December 2010.

 HP Creditor                                                         RM15,800

Asset                                                                     RM25,000

Provision for depreciation                               RM3,600

 

The supplier has confiscated the car because the buyer had failed to pay monthly installment on 1 April 2011.

Asset A/C

1/1/11   Balance b/d

25,000

1/4/11   Asset disposal

25,000

 

HP Creditor A/C

1/4/11   Asset disposal

15,800

1/1/11   Balance b/d

15,800

 

Provision for depreciation A/C

1/4/11   Asset disposal

3,600

1/1/11   Balance b/d

3,600

 

Asset disposal A/C

Asset	25,000	Creditor	15,800
HPIS		Prov. for depreciation	3,600
		P&L: Loss on disposal
	xx		xx

 

b.      Assets Destroyed in Accident

·         In a condition where by goods damaged due to accident, the insurance company will pay compensation as an indemnity to the loss of goods.

·         In Accounting terms, all the relevant Accounts need to be closed and the balance will be transferred to the Asset Disposal Account.

Asset Disposal A/C

Asset	X	Insurance claim	X
HPIS	X	Provision for depreciation	X
P&L: Profit on disposal	X	Creditor	X
	XX		XX

 

Example 7 :

 

The creditor’s balance on 1 January 2011 was RM10,900. The car broke down due to accident and the insurance company has paid an indemnity of RM18,000. The supplier has received a sum RM11,200 as an early settlement to end up the agreement. Balance in the Asset Account was RM25,000. The provision for depreciation was RM2,500.

 

Asset A/C

1/1/11   Balance b/d

25,000

1/1/11   Asset disposal

25,000

 

HP Creditor A/C

1/1/11   Bank : early settlement	11,200	1/1/11   Balance b/d	10,900
		Asset disposal	300
	11,200		11,200

 

Provision for depreciation A/C

1/1/11   Asset disposal

2,500

1/1/11   Balance b/d

2,500

 

Asset disposal A/C

Asset	25,000	Insurance claim	18,000
Creditor	300	Prov. for depreciation	2,500
		P&L: Loss on disposal	4,800
	25,300		25,300

 

c.       Assets Sold by Buyer

The treatment for asset sold by buyer is similar to early settlement.

 

d.      Early Settlement of Amount Owed by The Buyer

 

·         Sometimes a buyer wants to settle up the hire purchase agreement immediately on lump-sum payment. Therefore, the creditor Account should be closed separately.

·         In Accounting terms, all relevant Accounts such as asset Account, HPIS Account and provision for depreciation Account will be closed and the balance will be transferred to asset disposal Account.

 

Example 8 :

The balance in the creditor Account was RM10,900 on 1 January 2011. The buyer paid RM11,200 on lump-sum payment in order to end up the agreement.

Creditor A/C

1/1/11   Bank: early settlement	11,200	1/1/11   Balance b/d	10,900
		Asset disposal	300
	11,200		11,200

 

Asset disposal A/C

Creditor

300

P & L (loss)

300

 

EXERCISES

QUESTION 1

 You are required to prepare the relevant Accounts involved in the buyer’s book (except cash Account) for the situations below :

(a)                On 1 July 2011, Ahmad bought machinery on hire purchase from Peronda Bhd. The cash price was RM25,000. Ahmad was required to pay deposit of RM5,000 and the balance will be paid by equal installment for 12 months starting 31 July 2011 with interest rate of 20% per annum. Accounting year ends on 31 December every year.

 

(b)               Mr. Zaibo bought a motorcycle on hire purchase from Motor Company on 1 September 2010. The cash price was RM4,800. He was required to pay deposit of RM1,200. The balances need to be paid by monthly installment for 3 years including interest of 8% per year charged on the balance outstanding on 1 September 2010. The installment payment starting on 30 September 2010. The depreciation of the motorcycle was 10% per year based on straight line method. The financial years of the company ends on 31 August.

 

(c)                On 1 July 2010, Abu & Co. bought machines on hire purchase from Syarikat Bakar. The cash price of the machines was RM50,000. Abu & Co. was required to pay deposit of RM5,000 followed by 5 installments of RM10,000 every half year. The final installment was RM12,565. The interest rate was 20% per annum and charged on the balance outstanding after every installment. The Accounting year ends on 31 December each year.

 

(d)               On 1 January 2013, Syarikat Mariam bought a tractor on hire purchase from Syarikat Umar. The cash price for the asset was RMRM96,000. Under the hire purchase agreement, a sum of RM115,782 needs to be settled off which consist of deposit of RM32,000 and 2 equal installments amounting to RM41,891 each and to be paid on 31 December 2013 and 2014. The interest rate charged was 20% per year on the balance at the end of every year. The Accounting year ends on 31 December every year.

 

(e)               On 1 January 2013, GUNGYU Pvt. Ltd. bought a van on hire purchase from NSF Pvt. Ltd. The cash price was RM70,000. Under the hire purchase agreement, GUNGYU needs to pay RM75,000 which consists of deposit of RM30,000 and half year installment of RM12,000, RM11,500, RM11,000 and RM10,500. The first installment will be paid on 30 June 2013.

The hire purchase interest charged at a rate of 10% per annum, based on the balance outstanding after every installment. The depreciation of the van was 10% based on reducing balance method.

 

 

QUESTION 2  (End Of Hire Purchase Contract)

 

En. Zahid bought an audio set from Syarikat Elektronik on 1/1/12 on hire purchase. The cash price was RM12,400. During the signing up of agreement, deposit that has been paid was RM400. Payment need to be paid by 8 quarterly installments of RM1,975 (1^st installment will be paid on 31/3/12). The hire purchase interest was spread evenly while the depreciation rate was 10%. On 1/4/13, En. Zahid has failed to pay installments. Syarikat Elektronik has then confiscated the audio set. The financial year ends on 31/12 every year. Prepare the relevant accounts.

 

QUESTION 3  (Selling Of Asset)

 

The financial year of Syarikat Linda Bhd ends on 30 June. On 1/1/11, the company bought a mini bus from Mas Cyber Bhd with a cash price of RM50,000. Deposit paid was RM20,000 and the balances were settled by 12 quarterly installments of RM3,200 each quarter. 1^st installment will be paid on 31/3/11. On 30/9/12, the asset was sold at RM30,000 and the balance was paid by RM17,000 including the installment as at that date. The company recorded and spread the interest evenly in the Account. The depreciation rate was 20% on cost charged on the date of the ownership. Prepare the relevant accounts.

 

QUESTION 4 (Asset Disposal)

En. Ahmad bought a lorry on hire purchase from Syarikat Kenderaan Bob. The information on the asset was as follows:

 

Date of purchase               :               1 January 2010

Cash price                           :               RM40,000

Deposit                                :               RM10,000

Installment                         :               2 times / RM12,920 each installment and the final installment was                                                                            RM12,926 paid at the end of every year (3 years)

Interest                                :               14% on balance outstanding every year

 

On 31/10/2011, the lorry involved in an accident, the body was turned into pieces, the engine crushed and all the tyres burst. The insurance company paid En. Ahmad a sum of RM12,000 while En. Ahmad needs to pay RM28,000 to Syarikat Kenderaan Bob as an early settlement. The depreciation rate was 20% based on straight line method. Prepare the relevant accounts.

 

QUESTION 5 (Asset Disposal)

Syarikat ABC bought a vehicle from Syarikat Salman on 1/10/2011. The cash price was RM46,000. The Accounting year ends on 31 December every year. A payment of deposit has already been made at RM10,000. The interest rate was 15% per annum deducted from the outstanding price of the asset. The installment made for a period of 2 years. Interest was spread on sum of digit method. On 1/02/2012, the Volvo involved in an accident and could not be used anymore. The company has received an indemnity of RM42,000 from the insurance company. Syarikat ABC agreed to pay RM30,450 to end up the hire purchase agreement from Syarikat Salman. The depreciation rate was 12% per annum on cost. Prepare the relevant accounts.

QUESTION 6

Syarikat Ham Ko sold a machine to Syarikat Tum Bin on 1/7/2012 on hire purchase. The details of the agreement were as follows:

 

                                Cash price                                                           RM16,000

                                Deposit                                                                RM  4,000

                                Interest (balance outstanding)                        12% per annum

                                Machine at cost                                                  RM12,800

   Installment                                                         paid at the end of every month for a period of 1 year

 

In year 2013, Syarikat Ham Ko has confiscated the machine because Syarikat Tum Bin has failed to pay installment for 3 months until 31/3/2013. The asset was revalued by RM5,582.

 

Required, prepare:-

(a)                Debtor Account

(b)               Trading Account (SOCI)

(c)                Sales Account

 

QUESTION 7

On 1 July 2012, Syarikat SUKA SUKA Sdn Bhd bought a van on hire purchase from Syarikat AUTO ISIL. The cash price was RM50,000. Under the hire purchase agreement, Syarikat SUKA SUKA needs to pay deposit of RM5,000 and installment of RM12,000, RM23,411 and the final was RM13,780. The installments will be paid at the end of every year which is on 31 December.

 

Interest charged was 6% per annum on the balance outstanding each year. Depreciation rate was 20% based on straight line method. The Accounting year of the company ends on 31 December every year.

 

You are required to prepare the following Accounts until 31 December 2014:

(i)                  Vehicle Account

(ii)                Syarikat AUTO ISIL Account

(iii)               Hire Purchase Interest Suspense (HPIS) Account

(iv)              Provision for depreciation Account

 

If Syarikat AUTO ISIL sold the van at cost price RM39,000. Prepare the following account until 31 December 2014 :

 

i)                    Syarikat SUKA-SUKA Account

ii)                   Hire Purchase Sales

iii)                 Trading and Profit & Loss Account (SOCI)

iv)                 Balance Sheet (extract) (SOFP)

 

QUESTION 8

 

On 31 March 2004, D Biggs, who prepared his financial statements on 31 March, bought a lorry on hire purchase from Truck Fleet Ltd. The cash price of the lorry was RM61,620. Under the terms of hire purchase agreement, Biggs paid a deposit of RM20,000 on 31 March 2004, and two installments of RM23,981 on 31 March 2005 and 2006. The vendor charged interest at 10% per annum on the balance outstanding on 1 April each year. All payments were made on the due dates.

Biggs maintained the motor lorry account at cost and accumulated the annual provision for depreciation at 40% on the reducing balance method, in a separate account. (Assume no depreciation in the year of purchase).

You are required to prepare the following accounts as they would appear in the ledger of D Biggs for the period of contract (31/03/04 until 31/03/06) :

 

a)      Truck Fleet Ltd                                                                                                                                  [8 marks]

b)      Motor lorry on hire purchase                                                                                                      [2 marks]

c)       Provision for depreciation of motor lorry                                                                              [4 marks]

d)      Hire purchase interest payable                                                                                                  [6 marks]

e)      Balance Sheet as at 31 March 2005 (extract)                                                                        [5 marks]

 

QUESTION 9

 On 1 January 2010, Sen Heng Bhd had purchased a van for business purposes from Polaris Enterprise. Seng Heng Bhd’s accounting periods ends on 31 December each year. The following is information regarding the transaction :

 

Cash price	RM52,000
Deposit	13,000
Installment on 31 December 2010	16,900
Installment on 31 December 2011	15,600
Installment on 31 December 2012	14,300

 

Interest is charged at 10% per annum on outstanding balance and depreciation is fixed at 12% per annum at cost. However the van is destroyed in a road accident on 6 June 2012. The following is information on settlement :

 

                Takaful Ikhlas Bhd paid compensation RM15,000

                Sen Heng Bhd is required to pay RM10,400 to Polaris Enterprise.

 

Prepare the following accounts until disposal in Seng Heng Bhd’s books :

 

a)      Van Account                                                                                                                                      (3 marks)

b)      Provision for Depreciation – Van Account                                                                             (3 marks)

c)       Polaris Enterprise Account                                                                                                           (9 marks)

d)      Hire Purchase Suspense Interest Account                                                                            (4 marks)

e)      Van Disposal Account                                                                                                                     (6 marks)