Page 273 - Accountancy_F5

In the books of Karume Ltd.
Dr Shambani winners’ enterprise’s account Cr
Date Details TZS Date Details TZS
st
1 Jan. 2020 Sales 28,000,000 1 Jan. 2020 Cash 7,500,000
st
st
31 Dec. 2020 H-purchase 1,025,000 31 Dec. 2020 Cash 7,500,000
st
st
interest __________ 31 Dec. 2020 Balance c/d 14,025,000
FOR ONLINE READING ONLY
29,025,000 29,025,000
1 Jan. 2021 Balance b/d 14,025,000 31 Dec. 2021 Tractor repossessed 14,726,250
st
st
st
31 Dec. 2021 HP interest 701,250 __________
14,726,250 14,726,250
LANGUAGE EDITING
Dr Tractor repossessed account Cr
Date Details TZS Date Details TZS
31 Dec. 2021 Shambani Winners 14,726,250 31 Dec. Cash (sales) 15,350,000
st
st
31 Dec. 2021 Cash (repairs) 300,000 2021
st
31 Dec. 2021 Profit or loss 323,750 __________
st
15,350,000 15,350,000
31 December, 2021, As a statement of profit or loss account = Balancing figure
st
Partial repossession
Sometimes, in case of a default, the vendor enters negotiation with the hire purchaser
not to repossess the complete assets. Repossessing a part of the assets is called ‘partial
repossession’. In this case some parts of the asset are still left with the buyer. During
partial repossession, interest and depreciation entries are passed as usual in the books
of both the parties, but not the entry for payment. These entries are passed up to the
date of default.

As some parts of the asset are left with the hire purchaser, the hire vendor does not close
the hire purchaser’s account, nor does the hire purchaser close the hire vendor’s account.
They ascertain the current value of the asset repossessed with the help of an agreed rate
of depreciation (it is usually an enhanced rate). The hire vendor debits the same to the
assets repossessed account and credits it to the hire purchaser’s account.
Similarly, the hire purchaser debits the hire vendor’s account and credits the assets
account with the agreed value of the asset repossessed. As for the parts of the asset are
not repossessed by the vendor, the hire purchaser applies the normal rate of depreciation
and shows the depreciated value as a balance in the asset account. The balancing figure
in the asset account will show the profit or loss on default, and it will be transferred to
the profit or loss account.

Student’s Book Form Five
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