Module 1 Hire purchase agreement

1.Hire purchase system - It is a system of purchase under which goods are delivered to the
purchaser immediately on signing the agreement and the purchaser shall pay the purchase price in a
number of instalments .

2.Features of Hire Purchase :

a) Goods delivered to the hire purchaser immediately on signing the agreement

b) The ownership or title of property does not pass to the purchaser till the payment last
instalment

c) During the period of possession hire purchaser cannot sell,destroy,damage or pledge the
asset

d) If any default in instalments Hire vendor has the right to repossess the goods and he is not
bound to return the amount already received

3.Difference between hire purchase and Credit sale

Hire purchase Credit sale

a)Indian hire purchase Act 1972 a) Indian sale of Goods Act 1930

b)Agreement to sell b) Contract of sale

c)Hire purchaser and hire vendor c) Buyer and seller

d)Ownership of goods does not pass to the buyer d) Ownership transferred to buyer as soon

till the payment of last instalment as the contract is signed

e)Hire purchaser cannot sell ,destroy ,pledge the goods e)The buyer dispose property in anyway

f)Hire vendor has the right to repossess the goods f) Seller cannot repossess the goods ,but

if hire purchaser makes any default in instalments he can file a suit in the court

4. Hire purchaser or hirer - The person who possess( purchase ) the goods under hire purchase
agreement

5. Hire vendor - The person who sells the goods under hire purchase agreement

6. Hire purchase price -It is the total amount which is paid by the hire purchaser to the hire vendor
on hire purchase agreement

Hire purchase price = Cash price +interest

(NB) 7. Cash down payment : Under hire purchase ,the hire purchaser is required to pay an
amount at the time of signing the agreement

(NB) 8. Net hire purchase price - It means total hire purchase price of the goods as required to be
stated in the hire purchase agreement ,less any amount payable and specified as included in hire
purchase price ie; a)to cover the expenses on delivering the goods

b)to cover registration or other fees under any law in respect of goods

c)any amount payable for insurance

9. Net hire purchase charges =net hire purchase price –net cash price

10. Instalment purchase system - It is a system of purchase with the facility to pay the price in
certain instalments together with interest . ownership of goods is immediately transferred to the
buyer at the tme of agreement

11.Difference between hire purchase and instalment

Hire purchase instalment

1. It is an agreement of hiring with option It is a contract of sale
to buy
2. Hire Purchase Act 1972 Sale of Goods Act
3. Buyer known as hire purchaser ,seller In this ,parties are buyer and seller
known as hire vendor
4. Ownership is transferred only after the Ownership is transferred as soon as the
last instalment contract is signed
5. If make any default ,hire vendor If make any default ,the sellor has no right to
repossess the good s repossess the goods
6. Goods can be returned at the option of Goods are not returnable
hirepurchaser without payment of
future instalments
7. Hire purchaser has the right to The buyer has no right to terminate the
terminate the contract contract
8. The legal position of the hire purchaser Buyer is the owner of the goods not bailee
is that of a bailee
9. Hire purchaser has no right to pledge or
sell the goods

12. Credit purchase method journal entries both hirer and vendor

13.Complete repossession -If the hire purchaser makes any default in instalment ,hire vendor
repossess the goods .in this case hire vendor take away all the goods

14. Partial repossession - in this case vendor take away only a portion of goods

15. journal entries complete and partial repossession or

How do you deal with repossessed stock in the books of hire purchaser and hire vendor
Module 3 Departmental accounts
1.Difference between branch and departments

Branch Department

a) Physically separated from head office a)Attached to the main office

b) To increase the customer b) increase the efficiency
c) Perform same lin of activity c) Different type of activity
d) Either inland branches and foreign branches d) only inland

2. What is composite ratio?

If departmental purchases are not given,total purchases should be divided in the composite ratio

Composite ratio = Quantity x selling price

3. Apportionment of expenses in departmental profit and loss account (N B)

1 Selling expenses
Sales man salary
Discount allowed
Freight outward ,carriage outward
After sale service Net sales
Bad debt
Advertisement
Provision for discount on debtors
2 Freight inward ,carriage inward Net purchase
3 Rent ,rates and taxes
Air conditioning Area occupied or
Heating value of floor space
Insurance of building
4. Lighting Meter reading or
number of light
points or area
occupied
5 Insurance of stock Average stock
6 Power HP
7 Group insurance premium Direct wages
Worksmen compensation fund
8 Works manager’s salary Time spent in each
dept
9. Insurance on plant and machinery Value of asset
Depreciation
Repaires and renewals
10 Salaries and wages
Canteen expenses
Labour welfare expenses Number
Recreation expenses
11. Provident fund and ESI Wages and salaries
of each Dept
4. What is interdepartmental transfer ?

When one departments supplies goods or services to other departments ,such transfer is called
inter departmental transfer .It may be on : cost price or Market price or cost plus agreed %of profit

5. Unrealised profit or stock reserve (N B)

Unrealised profit profit in unsold goods should be debited to transferor department in the form
stock reserve

Journal entries : a)for closing stock b) For opening stock

General profit and loss A/c Dr Stock reserve A/c Dr

To Stock reserve To General Profit and loss A/c

Calculation of stock reserve or provision for unrealised profit

1. Determine the value of transferred goods in closing stock and opening stock of
transferee department
2. Determine the gross profit ratio of transferor dept by prepairing departmental trading
account
3. Apply gross profit ratio to value of goods transferred in the closing stock
4. Apply the gross profit ratio of previous year to opening stock
5. Deduct the amount from 4 from 3 . (That figure will be the stock reserve )

6.What is dual pricing ?

Sometimes inorder to motivate buying and selling departments ,they may be debited and credited
respectively with different prices .eg.buying department may be debited with cost price and selling
department may be credited with market price .It is known as dual pricing