Page 261 - Accountancy_F5

Statement of profit or loss account (extract)
Date Details TZS

31 Dec. 2018 Depreciation expense 1,200,000
st
Hire purchase interest 600,000

FOR ONLINE READING ONLY
31 Dec. 2019 Depreciation expense 1,200,000
st
Hire purchase interest 418,724

31 Dec. 2020 Depreciation expense 1,200,000
st
Hire purchase interest 219,320.4
LANGUAGE EDITING

Statement of financial position (extract) as at 31 December
st
Details 2018 2019 2020
TZS TZS TZS
Non-current assets:
Crushing machine at cost 6,000,000 6,000,000 6,000,000
Less: Provision for depreciation 1,200,000 2,400,000 3,600,000
Net book value 4,800,000 3,600,000 2,400,000
Non-current liabilities:
Makala Supplies Ltd. 2,193,204 - -
Current liabilities:
Makala Supplies Ltd.* 1,994,036 2,193,204

Workings:

* Computation of the current liabilities:
TZS
Amount to be paid in 2019 2, 412,760
Less: Interest (has not yet been recognised) 418,724
Current liability as at 31 December 2018 1,994,036
st
Accounting entries in the books of hire vendor

The accounting treatment for a hire purchase sale is similar to that of an ordinary sale,
with a few key differences. One such difference is that payment is deferred over a period,
during which the buyer is charged interest. In this scenario, the vendor would debit the
hire purchaser’s account with the full cash price, while simultaneously crediting the
hire sales account. When the instalments become due, the interest amount is debited to
the hire purchaser’s account and credited to the hire interest account. The instalment
amounts received are credited to the hire purchaser’s account and debited to the bank/
cash account. The accounting treatments can be summarised as follows:

Student’s Book Form Five
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