# Lesson Notes By Weeks and Term - Senior Secondary 3

Hire purchase and installment account II

Term: 1st Term

Week: 4

Class: Senior Secondary School 3

Age: 17 years

Duration: 40 minutes of 2 periods each

Date:

Subject:      Financial accounting

Topic:-       Hire purchase and installment account II

SPECIFIC OBJECTIVES: At the end of the lesson, pupils should be able to

1. Describe the layout/format of the hire purchase account
2. Solve some exercises on hire purchase

INSTRUCTIONAL TECHNIQUES: Identification, explanation, questions and answers, demonstration, videos from source

INSTRUCTIONAL MATERIALS: Videos, loud speaker, textbook, pictures

INSTRUCTIONAL PROCEDURES

PERIOD 1-2

 PRESENTATION TEACHER’S ACTIVITY STUDENT’S ACTIVITY STEP 1 INTRODUCTION The teacher reviews the previous lesson on hire purchase and installment account Students pay attention STEP 2 EXPLANATION She describes the layout/format of the hire purchase account Students pay attention and participates STEP 3 DEMONSTRATION She solves some exercises on hire purchase Students pay attention and participate STEP 4 NOTE TAKING The teacher writes a summarized note on the board The students copy the note in their books

NOTE

HIRE PURCHASE

FORMAT

DR.                                                                  Interest account CR

EXAMPLES
Mallam Tanko purchased a trailer lorry on 1st January 2010 from Ikehchukwu Okeke on hire purchase terms, under which Mallam Tanko paid a deposit of N123,010 to be followed by four annual installments of N100,000 each payable on 31st December. Interest is charged on outstanding balance at 10% per annum. The cash price of the equipment is N440, 000.

Depreciation on the equipment is at 20% per annum on straight line basis. All the sums due were paid on due dates.

Show the relevant ledger entries in the books of Mallam Tanko.

Workings (i)

Calculation of Hire purchase interest

H P interest

 N N 1/1/2010 Cash price 440,000 1/1/2010 Deposit (123,010) 316,990 31/12/2010 Interest (N316, 990 x 10%) 31,700 31,700 348,690 31/12/2010 1st installment (100,000) 248,690 31/12/2001 Interest (N248, 690 x 10%) 24, 870 24, 870 273, 560 31/12/2001 2nd Installment (100, 000) 173, 560 31/12/2002 Interest (N173, 560 x 10%) 17, 356 17, 356 190, 916 31/12/2002 3rd Installment (100, 000) 90, 916 31/12/2003 Interest (N90, 916 x 10%) 9,084* 9, 084 31/12/2003 4th Installment 100, 000 (N100, 000)83, 010

*          The figure is as a result of previous approximation.

 Working 2. Calculation of Hire purchase price Initial deposit paid on 1/1/2000 N 123, 010 Installments (N100, 000 x 4) 400, 000 523, 000 Ledger accounts

Hire purchase Creditor ( MallamTanko)

 N   1/1/2000 Bank (Deposit)                  123, 010   31/12/2000 Bank (1st Installment)     100, 000   31/12/2000 Balance c/d                      248, 690 N   1/1/2000 Hire purchase Lorry    440, 000   31/12/2000 H P Interest                 31, 700

 471, 700   31/12/2001 Bank (2nd Installment) 100, 000   31/12/2001 Balance c/d                    173, 560   273, 560         31/12/2002 Bank (3rd Installment) 100, 000   31/12/2002 Balance c/d                     90, 916   190, 916   31/12/2003 Bank (4th Installment) 100, 000     100, 000 471, 700   1/1/2001 Balance b/d                    248,690   31/12/ H P Interest                          24, 870   273, 560   1/1/2002 Balance b/d                 173, 560   31/12/2002 H P Interest               17, 356   190, 916   1/1/2003 Balance b/d                  90, 916   31/12/2003 H P Interest                9, 084   100, 000

Hire purchase Interest Account

 N   31/12/2000 H P Creditor                   31, 700   31/12/2001 H P Creditor                   24, 870   31/12/2002 H P Creditor                   17, 356   31/12/2003 H P Creditor                     9, 084 N   31/12/2000 Profit & Loss a/c           31, 700 31/12/2001 Profit & Loss a/c           24, 870 31/12/2002 Profit & Loss a/c           17, 356 31/12/2003 Profit & Loss a/c             9, 084

Hire purchase Lorry account

 N   1/1/2000 H P Creditor                       440, 000   1/1/2001 Balance b/d                        440, 000   1/1/2002 Balance b/d                        440, 000 N   1/1/2000 Balance b/d                        440, 000   1/1/2001 Balance b/d                        440, 000   1/1/2002 Balance b/d                        440, 000

 1/1/2003 Balance b/d                       440, 000   1/1/2004 Balance b/d                       400, 000 1/1/2003 Balance b/d                        440, 000

Provision for Depreciation account

 N   31/12/2000 Balance c/d                        88, 000   31/12/2001 Balance c/d                     176, 000       176, 000   31/12/2002 Balance c/d                     264,000       264, 000   31/12/2003 Balance b/d                   352, 000       352, 000 N   31/12/2000 P & L a/c                          88, 000   1/1/2001 Balance b/d                           88, 000   31/12/2001 P & L a/c                          88,000   176, 000   1/1/2002 Balance b/d                         176, 000   31/12/2002 P & L                                88, 000   264, 000   1/1/2003 Balance b/d                         264, 000   31/12/2003 P & L                                88, 000   352, 000   1/1/2004 Balance b/d                        352, 000

## Interest Suspense Method

This is the second method of treating hire purchase transactions. When this method is employed, these are the accounting entries:

## a.  On acquiring the asset

DR. Asset account (with the Cash price)

DR. Hire purchase interest suspense (with the full H P Price)

CR. Creditors account (with the H P price)

b. Payment of initial deposit

DR. Creditors account

CR. Bank account

c. Payment of installments

DR.    Creditors account

CR.    Bank account

## d.  Interest element

DR. Interest account

CR. Hire purchase interest suspense account

## e.  Interest written off

DR. Profit and loss account

CR. Hire purchase interest account

## f.   Depreciation of assets

DR. Profit and Loss account

CR. Provision for depreciation account

EVALUATION:

Using example 1 above, prepare

1. Hire purchase creditor account
2. Hire purchase interest suspense account
3. hire purchase interest account

CLASSWORK: As in evaluation

CONCLUSION: The teacher commends the students positively