Indera Bhd sold a freezer to Tasty Bhd under hire purchase scheme on 1 November 2018. The selling price and cost of goods sold for the freezer are RM12,000 and RM7,000 respectively. Indera Bhd required Tasty Bhd to pay a deposit of RM6,000. The hire purchase period is 18 months which due at the end of each month starting from 30 November 2018. The interest rate for the hire purchase agreement is 8% per annum. Indera Bhd recognized interest using the sum of years’ digit at the end of accounting period which is on 31 December every year. Sales method is applied to record the hire purchase transaction and the gross profit is recognized based on collection. REQUIRED: (Round all numbers to the nearest RM) Calculate the hire purchase price and amount of installment per month. Calculate gross profit realised for the year 2018. Prepare all relevant journal entries for Tasty Bhd on 31 December 2018. Prepare an extract Statement of Profit or Loss for the year ended 31 December 2018. Assume Indera Bhd wants to repossess the freezer due to the failure of Tasty Bhd to pay the installments. Discuss the accounting treatments in the book of Indera Bhd on the repossession date.

Cornerstones of Financial Accounting

4th Edition

ISBN:9781337690881

Author:Jay Rich, Jeff Jones

Publisher:Jay Rich, Jeff Jones

Chapter8: Current And Contingent Liabilities

Section: Chapter Questions

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QUESTION 1

Indera Bhd sold a freezer to Tasty Bhd under hire purchase scheme on 1 November 2018. The selling price and cost of goods sold for the freezer are RM12,000 and RM7,000 respectively.

Indera Bhd required Tasty Bhd to pay a deposit of RM6,000. The hire purchase period is 18 months which due at the end of each month starting from 30 November 2018. The interest rate for the hire purchase agreement is 8% per annum.

Indera Bhd recognized interest using the sum of years’ digit at the end of accounting period which is on 31 December every year. Sales method is applied to record the hire purchase transaction and the gross profit is recognized based on collection.

REQUIRED:

(Round all numbers to the nearest RM)

Calculate the hire purchase price and amount of installment per month.

Calculate gross profit realised for the year 2018. Prepare all relevant journal entries for Tasty Bhd on 31 December 2018.

Prepare an extract Statement of Profit or Loss for the year ended 31 December 2018.

Assume Indera Bhd wants to repossess the freezer due to the failure of Tasty Bhd to pay the installments. Discuss the accounting treatments in the book of Indera Bhd on the repossession date.

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