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CMA Intermediate · Financial Accounting · Hire Purchase and Installment Sale Transactions

Kumar Motors sold a vehicle on hire purchase to Anil. Cash price Rs 2,40,000. Anil paid the down payment and two installments, and then defaulted. Kumar Motors repossessed the vehicle, which was valued at Rs 1,10,000 on repossession, while the amount due from Anil (the unpaid balance of the cash price in the vendor's books) was Rs 1,50,000. What is the loss on repossession in Kumar Motors' books?

The loss is Rs 40,000. The hirer owed Rs 1,50,000 and the vendor took back the vehicle valued at Rs 1,10,000, so the unrecovered difference is written off as loss on repossession to the Profit and Loss account.

  1. ARs 1,30,000
  2. BRs 1,10,000
  3. CRs 40,000Correct
  4. DRs 1,50,000

Explanation

The Hirer's account shows a debit balance of Rs 1,50,000 due. Goods taken back are valued at Rs 1,10,000 and are credited to the hirer's account. The difference of Rs 1,50,000 minus Rs 1,10,000 = Rs 40,000 is the loss on repossession, transferred to the Profit and Loss account. Rs 1,50,000 ignores the value of the goods taken back.

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