India Scooters Ltd sold 3 scooters to development agencies on January 1, 2007 for a total sale price of Rs 1,50,000 or on a hire-purchase basis. The terms of the contract provided for a down payment of Rs 45,000 and the balance of the spot price in three equal instalments as well as interest at 10% per annum compounded annually. Payment in instalments was payable according to the following schedule: 1st instalment on 31 December 2008; 2nd instalment on 31 December 2009 and Part 3 on 31 December 2010. The development agencies paid the 1st installment on time, but did not pay it afterwards (due to its failure to pay the second installment, India Scooters Ltd repossessed 2 scooters and valued them at 50% of the cash price). Development agencies have calculated a depreciation of 10% per year according to the straight line method. Prepare the necessary general ledger accounts in the books of development agencies for the year 2007 to 2009. Like leasing, hire-purchase agreements allow businesses with inefficient working capital to use assets. It can also be more tax-efficient than standard loans, as payments are recorded as expenses – although any savings made are offset by tax benefits related to depreciation. Tenant: Tenant means the person who came into possession of property from a landlord as part of a hire purchase. This includes a person to whom the tenant`s rights or responsibilities under the contract are transferred by assignment or by operation of law.
It is also called a rental buyer. The provider allows the company to use assets after the agreement is signed, but ownership passes to XYZ at the end of the 4th year, when all payments have been made. This transaction will reduce the right to use assets for depreciation expenses. At the end of the hire-purchase agreement, the right to use assets is not zero, because the company still uses assets and the property remains in the hands of the tenant. At the beginning of the hire purchase, the buyer pays the first deposit, which depends on the agreement between the two parties. The buyer/lessee is required to pay the deposit in exchange for the right to use the underlying asset. The company must seize this asset by granting the right to enjoy the future economic benefits of the assets of other companies. Hire-purchase agreements are generally more expensive in the long run than a full payment for an asset purchase. This is because they can have much higher interest costs. For businesses, it can also mean more administrative complexity.
4. Obsolescence fees: The tenant must bear the obsolescence costs because the lease cannot be terminated abruptly. Prepare for two fiscal years ending March 31, 2009. (i) Sathya`s Ledger Car Account assuming that Sathya charged Sathya the full cash price at the beginning of the Contract, and (ii) Sathya`s Personal Account and The Rental Seller`s Ledger Merchandise Account. If you usually consider VAT when an invoice is paid and not issued: you cannot use such an approach for hire-purchase contracts. Therefore, in the Purchase Invoice window, click More options > VAT processing > VAT processing details and check “Consider VAT when issuing this invoice, unpaid”. Here too, the display in “Amounts due” is a check with the agreement log. Hire-purchase agreements are similar to lease-to-own transactions that give the tenant the option to purchase at any time during the contract, for example. B rental cars. Like lease-to-own, hire-purchase can benefit consumers with poor credit ratings by spreading the cost of expensive items they wouldn`t otherwise be able to afford over a longer period of time.
However, this is not the same as a loan extension, as the buyer technically does not own the item until all payments have been made. From an accounting point of view, the buyer cannot yet seize the fixed assets because they still belong to the sellers. The buyer only has the right to use the assets. Since ownership is not transferred until the end of the contract, hire-purchase plans offer the seller greater protection than other methods of selling or renting unsecured items. Indeed, items can be more easily taken back if the buyer is not able to track refunds. An appropriate accounting procedure was followed in accordance with the AS-19 accounting standards published by ICAI. At the end of the accounting year, the company must record the depreciation expense via the right of use. Capital assets are amortized over time as the company uses them in its operations, so we have recognized the depreciation expense. Due but unpaid = amount of the payment that was due but was not received during the billing period. We look at some of the technical aspects of section 11 using a sample hire purchase agreement, as this is something that most AAT licensed members and other members will encounter in their daily professional lives. (13) On 1 January 2009, Mr Patel purchased a rental machine from Vivek. The hire purchase price was Rs 4,00,000, payable in the amount of Rs 1,00,000 as a down payment and three annual instalments of Rs 1,00,000 each; the first annual instalment is payable on 31 December 2009.
Vivek calculated interest @ 5% per year. Patel charged a depreciation on the machine @ 15% per year on the decreasing balances of the machine. It closes its books each year on March 31. Calculate the cash price of the machine. Also prepare the following accounts for the three years of accounting in Patel`s general ledger. (a) Vivek`s account – the lessor, (b) the machine account, (c) the interest account and (d) the depreciation account. The accounting entries for both methods are displayed in tabular form as follows: Mr A and ABC company have entered into the lease-purchase agreement for the car. The car costs $10,000 and requires a 30% deposit and the balance is paid monthly with interest charges.
The monthly payment over 3 years is $200. Gopal bought on 1. January 2005 a car to be purchased on installment and paid Rs 60,000 in cash and balance in four annual instalments of Rs 56,000, Rs 52,000, Rs 48,000 and Rs 44,000, each payment containing the same cash price at the end of each billing period. You must calculate the total cash price and the amount of interest in each payment. (2) Four annual instalments of Rs 50,000 from the date of signature of the agreement. Interest rate charged by the seller – 25% per year Calculate the spot price of the asset. For three consecutive years of accounting in Mr. Sathyam`s books. 5. High penalty: If a tenant wishes to terminate the lease before the end of the term, this will result in a high penalty for the tenant, otherwise the lease cannot be terminated. At the end of the accounting year, the lessee must recognise interest charges on rental liabilities. It increases the rental liability to the future value corresponding to the payment plan.
The interest charge is calculated on the basis of the effective interest rate. From an accounting perspective, a hire purchase agreement is simply a loan you take out to purchase an asset such as a vehicle. The exchange of an antique vehicle is recorded as a sale. To see how a hire purchase agreement is captured in solar accounts, let`s look at the following example, which involves buying a new van: This journal creates responsibility for future payments under the agreement minus future financing costs that fall into profit and loss. Within the framework of such a system, one can meet so many attractive legends – interest-free loan; no hidden costs; no margin money; low IME rates and so on. You need to understand: is it really uninteresting? Do they sell products without profit? How much is the margin? How are instalment amounts calculated? What are the consequences of a delay in instalment payments? Is there a legal law that regulates such a system? How do buyers and buyers enter into a contract? How is accounting treatment carried out in relation to buyers and sellers? Is there a difference between the hire-purchase system and the installment payment system? The answers to these questions and other related activities related to this system are the main part of this chapter. .