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Hp account

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Exam practice Question
Imo State University
On January 20x6, F Limited commenced business selling goods on hire purchase under the terms of
the agreements an initial deposit of 20% is payable on delivery followed by four equal quarterly
instalments the first being due three months after the date of sale. During the years sales were
made as follows
Cost price HP Sales price
10 January 150 225
8 March 350 525
12 May 90 135
6 July 200 300
20 September 70 105
15 October 190 285
21 November 160 240
The goods sold In July were returned in September and eventually sold in November for N187 cash.
All other instalment are paid on the due dates. It may be assumed that
a. Gross profit and interest are credited to profit and loss account in the proportion that
deposit and instalments received bear to hire purchase price or
b. The cost is deemed to be paid in full before any credit is taken for gross profit and interest.
You are to prepare for the first year of trading, a hire purchase trading account compiled
firstly on assumption
a. and secondly on assumption
b. and give relevant balance sheet entries under each assumption.
Workings should be clearly shown

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Solution
Cost
HP sales
price
Cash
collected
Balance
Balance
of
Earned
Profit
Unearned
Cost
Jan 10
150
225
180
45
60
15
30
Mar 8
350
525
420
105
140
35
70
May 12
90
135
81
54
27
18
36
July 6
200
300
247
-
47
-
-
Sept 20
70
105
42
63
14
21
42
Oct 15
190
285
57
228
19
76
152
Nov 21
160
240
48
192
16
64
128
1,210
1,815
1,075
687
323
229
458
F Ltd
Hire Purchase Income Statement(extract)
Hire purchase Sales 1,815
Cost of sales 1,210
Provision for unrealized profit 229
Loss on repossessed goods 53
1,492
Gross profit 323
Balance Sheet (extract)
Hire Purchase Account Receivable 687
Less : provision for unrealized profit 229
458
b. Second assumption
workings
Cost
HP sales
price
Cash
collected
Balance
Balance
of profit
Earned
Unearned
Cost
Jan 10
150
225
180
45
30
45
-
Mar 8
350
525
420
105
70
105
-
May 12
90
135
81
54
-
45
9
July 6
200
300
247
-
47
-
-
Sept 20
70
105
42
63
-
35
28

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Exam practice Question Imo State University On January 20x6, F Limited commenced business selling goods on hire purchase under the terms of the agreements an initial deposit of 20% is payable on delivery followed by four equal quarterly instalments the first being due three months after the date of sale. During the years sales were made as follows Cost price HP Sales price 10 January 150 225 8 March 350 525 12 May 90 135 6 July 200 20 September 70 300 105 15 October 190 285 21 November 160 240 The goods sold In July were returned in September and eventually sold in November for N187 cash. All other instalment are paid on the due dates. It may be assumed that a. Gross profit and interest are credited to profit and loss account in the proportion that deposit and instalments received bear to hire purchase price or b. The cost is deemed to be paid in full before any cr ...
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