Return of goods
Should a hire purchase’ customer fail to pay an instalment, the goods as well as the instalments already paid, are liable to be ‘forfeited. If the hire vendor takes possession of the entire goods, the hire purchaser has. no option but to write. off the loss thus incurred. The entries made by the hire purchaser at the time to purchase of the goods will determine what entries have to be passed at the time of the loss of the goods. If the first method is followed (debiting the asset and crediting the vendor with full cash price), the vendor’s account should be transferred to the account of the .asset, and the balance in the asset account should be written off. If the second method is followed, the balance in the asset account should be written off.
Kareem Restaurant purchased from E.C. Ltd. a colour TV. steno 1st October: 1998 on the hire-purchase system. The cash price of the set was Rs. 15,000. Terms of payment ere . 1,150 down and Rs. 4,000 half yearly over two years, the first instalment was to. be paid 01;1 31st March’, 1999 . Rate of interest was 12% per annum. Kareem Restaurant wrote off 15%.depreciation per annum on reducing instalments basis and closed its books every year on 31 st March. It could not pay the second instalment 30th September, 1999 and as a consequence, EC Ltd. repossessed the T.V. set, . Prepare T.V. Set Account and the hire vendor’s account in Kareem Restaurant’s ledger, Also Calculate . the loss suffered by Kareem Restaurant on repossession of T.V. set by E.C. Ltd. ‘Make all calculations to the nearest rupee.
In Kareem Restaurant’s Ledger
The is suffered by Kareem Restaurant ‘is Rs. 1,512 in addition to Rs. 641 interest payable for the half.year ended Filth September, 199~tot~ loss thus being Rs. 2,153 Second Method.