Page 274 - Accountancy_F5

Example 8.10
Migombani Car Dealers sold three (3) light commercial vans to Chai Traders on 1
st
January 2020 on hire purchase system. The price for each van was TZS 90,000,000,
payment of which was to be made as follows:

(a) TZS 30,000,000 down payment for each van; and
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(b) The remaining amount be paid in three (3) equal annual instalments of TZS
20,000,000 for a van along with interest at 15 per cent on outstanding balance.

Chai Traders were charging depreciation at 20 per cent each year on reducing
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balance method. After payment of the first instalment on 31 December 2020,
st
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Chai Traders could not pay further instalments.
It was agreed between parties to repossess two vans adjusting their values against
the amount due, for the purpose of repossession, a depreciation at 30 per cent
was charged. Repossessed vans were repaired at a cost of TZS 2,000,000 and
then all sold for TZS 92,000,000.
Required: Calculate the value of the repossessed vans and prepare accounts in the
books of both parties.

Solution 8.10

In the books of Chai Traders
Dr Light commercial vans account Cr

Date Details TZS Date Details TZS
01 Jan. 31 Dec.
st
st
2020 Migombani car dealers* 270,000,000 2020 Depreciation * 54,000,000
__________ 2020 Balance c/d 216,000,000
270,000,000 270,000,000
2021 Balance b/d 216,000,000 2021 Depreciation* 43,200,000
2021 Migombani Car
2021 Dealers* 88,200,000
__________ 2021 Profit or loss* 27,000,000
Balance c/d 57,600,000
216,000,000 216,000,000
2022 Balance b/d 57,600,000

Student’s Book Form Five
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