Page 282 - Accountancy_F5

Outstanding instalments = 4,500,000 + 6,000,000 - 3,600,000 = TZS 6,900,000

, 6 900 000
,
Cost of inventory on hire = # , 7 000 000 = TZS4 ,600 000
,
,
10 ,500 000
,
Chapter summary
The chapter has offered a comprehensive exploration of accounting for hire purchases,
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beginning with a clear definition of hire purchase contracts and their fundamental
principles. It has outlined the buyer’s payment structure, where goods are acquired
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through regular instalments, while the seller retains ownership until a final payment,
commonly used for non-current assets like equipment and vehicles. Accounting for
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hire purchases entails maintaining separate records for both the buyer and the seller,
with the buyer recognising the seller as a creditor until contract completion, while
the seller views the buyer as a debtor. The chapter has delved into revenue and cost
recognition associated with hire purchase agreements, addressing issues such as default
and repossession of goods and their treatment in accounting records.
To reinforce understanding, the chapter has incorporated numerous examples and
learning activities, facilitating real-world application of hire purchase accounting
concepts. Through exercises and revision questions, students are encouraged to engage
actively with the material, enhancing their competencies in handling various aspects
of accounting for hire purchases within business operations. This comprehensive
approach ensures a thorough grasp of the subject matter, equipping students with the
knowledge and skills necessary for effective management of hire purchase agreements
and accurate financial reporting.

Revision Exercise

1. Global motors sell “Boxer ‘125’ Motorcycles” brand new on hire purchases. The
total hire purchases price (cash plus interest) for each motorcycle is TZS 3,000,000.
Customers are required to pay TZS 1,200,000 as a down payment followed by three
equal instalments of TZS 600,000 each after every three months. Each motorcycle
cost Global motors TZS 2,400,000. The following is a trial balance of Global
motors as on 31 March, 2019:
st

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