Let's break down the problem step by step, providing explanations and calculations as required. --- ### 1. **Hire Purchase Debtors Account** #### **Step 1: Calculate Hire Purchase Price per Bicycle** - **Retail Price:** Sh.8,000 - **HP Price:** Retail Price + 15% = 8,000 × 1.15 = **Sh.9,200** --- #### **Step 2: Calculate Total HP Sales** - **Number of Bicycles Sold on HP:** 2,000 - **Total HP Sales:** 2,000 × 9,200 = **Sh.18,400,000** --- #### **Step 3: Down Payment and Instalments** - **Down Payment:** 25% of HP Price = 0.25 × 9,200 = **Sh.2,300** - **Balance Payable in Instalments:** 9,200 – 2,300 = **Sh.6,900** - **Monthly Instalment:** 6,900 / 20 = **Sh.345** --- #### **Step 4: Receipts from HP Customers** **(A)** **Total Down Payments Received:** - 2,000 × 2,300 = **Sh.4,600,000** But 10 bikes (September) only paid down payment + 2 instalments before default. - Instalments paid for these = 2 × 345 × 10 = **Sh.6,900** - Down payments for these = 2,300 × 10 = **Sh.23,000** All others paid as scheduled. --- #### **Step 5: Calculate Instalments Received** - **July Sales (400 bikes):** Paid for 9 months (July 2014 - March 2015) - **September Sales (400 bikes, but 10 defaulted):** - 390 bikes paid for 7 months (September 2014 - March 2015) - 10 bikes paid only down payment + 2 instalments - **December Sales (500 bikes):** 4 months (December 2014 - March 2015) - **February Sales (700 bikes):** 2 months (February - March 2015) Let's calculate: **July Sales:** - Down payments: 400 × 2,300 = 920,000 - Instalments: 400 × 345 × 9 = 1,242,000 **September Sales:** - 390 bikes: - Down payments: 390 × 2,300 = 897,000 - Instalments: 390 × 345 × 7 = 941,850 - 10 bikes: - Down payments: 10 × 2,300 = 23,000 - Instalments: 10 × 345 × 2 = 6,900 **December Sales:** - Down payments: 500 × 2,300 = 1,150,000 - Instalments: 500 × 345 × 4 = 690,000 **February Sales:** - Down payments: 700 × 2,300 = 1,610,000 - Instalments: 700 × 345 × 2 = 483,000 --- **Total Down Payments:** - July: 920,000 - September: 897,000 + 23,000 - December: 1,150,000 - February: 1,610,000 Total = 920,000 + 897,000 + 23,000 + 1,150,000 + 1,610,000 = **Sh.4,600,000** **Total Instalments Received:** - July: 1,242,000 - September: 941,850 + 6,900 - December: 690,000 - February: 483,000 Total = 1,242,000 + 941,850 + 6,900 + 690,000 + 483,000 = **Sh.3,363,750** --- #### **Step 6: Amount Outstanding at Year End (Closing Debtors)** For each batch, calculate what is yet to be paid as of 31 March 2015. **A. July Sales (400 bikes):** - Payments made: 9 instalments (July 2014 - March 2015) - Instalments remaining: 20 - 9 = 11 - Outstanding per bike: 11 × 345 = 3,795 - Total: 400 × 3,795 = **Sh.1,518,000** **B. September Sales (390 bikes):** - Payments made: 7 instalments (Sept 2014- March 2015) - Instalments remaining: 13 - Outstanding per bike: 13 × 345 = 4,485 - Total: 390 × 4,485 = **Sh.1,749,150** **C. December Sales (500 bikes):** - Payments made: 4 instalments - Instalments remaining: 16 - Outstanding per bike: 16 × 345 = 5,520 - Total: 500 × 5,520 = **Sh.2,760,000** **D. February Sales (700 bikes):** - Payments made: 2 instalments - Instalments remaining: 18 - Outstanding per bike: 18 × 345 = 6,210 - Total: 700 × 6,210 = **Sh.4,347,000** **E. 10 Defaulted Bikes (September):** - Repossessed, so balance is written off (no longer due). **Total Hire Purchase Debtors at Year End:** = 1,518,000 + 1,749,150 + 2,760,000 + 4,347,000 = **Sh.10,374,150** --- #### **Step 7: Prepare the Hire Purchase Debtors Account** | Particulars | Sh. | Particulars | Sh. | |-------------------------------|---------------|-----------------------------|--------------| | To HP Sales (Total) | 18,400,000 | By Cash (Down Payments) | 4,600,000 | | | | By Cash (Instalments) | 3,363,750 | | | | By Repossessions | 80,500 | | | | By Balance c/d (Closing) | 10,374,150 | | | | (10 bikes x [9,200 - paid]) | | | **Total** | 18,400,000 | **Total** | 18,400,000 | **Calculation for Repossessions (10 bikes):** - Each paid: 2,300 (down) + 2 × 345 = 2,990 - HP Price per bike: 9,200 - Outstanding per bike: 9,200 - 2,990 = **6,210** - Total: 10 × 6,210 = **Sh.62,100** But for the Debtors Account, you *credit* the account with the *amount due* written off (i.e. the outstanding balance at repossession), i.e. Sh.62,100. --- ### 2. **Repossessions Account** | Particulars | Sh. | Particulars | Sh. | |-------------------------------------|--------------|---------------------|------------| | To HP Debtors (outstanding due) | 62,100 | By Repairs (3,000×10)| 30,000 | | To Profit & Loss (Loss) | (balancing) | By Sales (5,600×10) | 56,000 | | **Total** | 62,100 | **Total** | 62,100 | **Calculation:** - Repairs: 10 × 3,000 = 30,000 - Sale proceeds: 10 × 5,600 = 56,000 **So, Loss on Repossession = HP Debtors (62,100) - Repairs (30,000) - Sale Proceeds (56,000) = (62,100 - 30,000 - 56,000) = -23,900 (i.e., a gain).** But that's not possible unless the outstanding was less than proceeds. Let's check: - Amount credited to HP Debtors = outstanding balance on repossession = 10 × 6,210 = **62,100** - Sale proceeds: 56,000 - Less repairs: 30,000 - Net proceeds: 56,000 - 30,000 = 26,000 So, Loss on Repossession = 62,100 (amount written off) - 26,000 (net proceeds) = 36,100 loss. **So, the account:** | Particulars | Sh. | Particulars | Sh. | |---------------------|--------|-----------------------------|--------| | To HP Debtors | 62,100 | By Sales (5,600×10) | 56,000 | | To P&L (Loss) | 6,100 | By Repairs | 30,000 | | **Total** | 68,200 | **Total** | 68,200 | --- ### 3. **Hire Purchase Trading, Profit and Loss Account** #### **A. Sales:** - HP Sales (2,000 × 9,200) = **Sh.18,400,000** #### **B. Cost of Goods Sold (COGS):** - **Units sold on HP:** 2,000 - **Cost per unit:** 5,600 - **Total COGS:** 2,000 × 5,600 = **Sh.11,200,000** #### **C. Expenses (Apportioned):** - **Total Units Sold:** 5,000 - **HP Units:** 2,000 - **Proportion:** 2,000 / 5,000 = 0.4 (40%) **Salaries:** 2,000,000 × 0.4 = 800,000 **General Expenses:** 1,500,000 × 0.4 = 600,000 **Total Expenses (excluding repairs):** 1,400,000 #### **D. Repairs on Repossessed Bicycles:** - Sh.30,000 (all for HP) #### **E. Less: Loss on Repossession:** - Sh.6,100 #### **F. HP Interest (Profit Element):** - HP Sales: 2,000 × (9,200 - 8,000) = 2,000 × 1,200 = **Sh.2,400,000** This is the total interest/profit on HP sales. Alternatively, (HP price – Retail price) × units. #### **G. Closing Stock (if needed):** - Bicycles bought: 6,000 - Sold: 5,000 - Closing stock: 1,000 × 5,600 = **Sh.5,600,000** (but this is shown in balance sheet, not P&L). --- #### **Final HP Trading, Profit and Loss Account Layout:** | Dr. | Sh. | Cr. | Sh. | |-------------------------------------- |-------------- |----------------------------------------- |------------ | | To Cost of Goods Sold (2,000×5,600) | 11,200,000 | By HP Sales (2,000×9,200) | 18,400,000 | | To Salaries (40%) | 800,000 | | | | To General Expenses (40%) | 600,000 | | | | To Repairs on repossessed bikes | 30,000 | | | | To Loss on repossession | 6,100 | | | | **Total** |12,636,100 | |18,400,000 | **Gross Profit = 18,400,000 - 11,200,000 = 7,200,000** **Net Profit = 18,400,000 - 12,636,100 = 5,763,900** --- ### 4. **General Trading, Profit and Loss Account** #### **A. Sales:** - **Total Bicycles Sold:** 5,000 - **Less HP Sales:** 2,000 - **General Sales:** 3,000 × 8,000 = **Sh.24,000,000** #### **B. Cost of Goods Sold:** - 3,000 × 5,600 = **Sh.16,800,000** #### **C. Expenses (apportioned):** - Salaries: 2,000,000 × 0.6 = **1,200,000** - General Expenses: 1,500,000 × 0.6 = **900,000** - Rent and rates outstanding: **125,000** **Total Expenses:** 1,200,000 + 900,000 + 125,000 = **2,225,000** #### **D. Closing Debtors:** - Owing by non-HP customers: **2,500,000** --- #### **General Trading, Profit and Loss Account:** | Dr. | Sh. | Cr. | Sh. | |------------------------------------------ |----------- |--------------------------------- |----------- | | To Cost of Goods Sold (3,000×5,600) |16,800,000 | By Sales (3,000×8,000) |24,000,000 | | To Salaries (60%) | 1,200,000 | | | | To General Expenses (60%) | 900,000 | | | | To Rent and Rates (Outstanding)