Jalani Distributors sold three light commercial vans

Jalani Distributors sold three light commercial vans to Jain Enterprises on January 1, 2017, on hire purchase system.

The price of each van was Rs. 90,000 payment of which was to be made as follows :

1. Rs. 30,000 as a down payment for each van;
2. The remaining amount in 3 equal annual instalments along with interest @ 15%.

Jain Enterprises was charging depreciation of @20% each year on the written-down value method. After payment of the first instalment as of December 31, 2017, they could not pay further instalments.

It was agreed between the parties to repossess two vans, adjusting their value against the amount due, For the purposes of repossession. Depreciation @ 30% p.a. was charged.

Repossessed goods were repaired at a cost of Rs. 2,000 and were then sold for 92,000. Calculate the value of repossessed stock and show the necessary accounts in the books of both parties.

Solution

In the books of Jain Enterprises

Dr                                           Light Commercial Van A/c                           Cr

Date	Particulars	Amount	Date	Particulars	Amount
1-1-2017	To Jalani Distributors (90000×3)	270000	31-12-2017	By Depreciation (20% of 2,70,000)	54000
				By Balance c/d	216000
		270000			270000
1-1-18	To Balance b/d	216000	31-12-18	By Depreciation	43200
			31-12-18	By Jalani Distributors	88200
			31-12-18	By Profit & Loss A/c	27000
			31-12-18	By Balance c/d	57600
		216000			216000
1-1-89	To balance b/d	57600

Dr                                                        Jalani Distributors’ A/c                                Cr

Date	Particulars	Amount	Date	Particulars	Amount
1-1-17	To Bank A/c (Down payment)	90000	1-1-17	By Light Commercial Vans	270000
31-12-17	To Bank A/c (First Instalment)	87000	31-12-17	By interest A/c	27000
31-12-17	To Balance c/d	120000
		297000			297000
31-12-18	To Light Commercial Vans	88200	1-1-18	By Balance b/d	1,20,000
31-12-18	To Balance c/d	49800	31-12-18	By Interest	18,000
		138000			1,38,000
			1-1-89	By Balance b/d	49800

Books of Jalani Distributors

Jain Enterprises’A/c

Date	Particulars	Amount	Date	Particulars	Amount
1-1-17	To Sales A/c	270000	31-12-17	By Bank (Down Payment )	90000
31-12-17	To Interest A/c	27000	31-12-17	By Bank A/c (First Instalment)	87000
			31-12-17	By Balance c/d	120000
		297000			297000
1-1-18	To Balance b/d	120000	31-12-18	By Goods Repossessed	88200
1-1-18	To Interest A/c	18000	31-12-18	By balance c/d	49800
		138000			138000
1-1-19	To Balance b/d	49800

Goods Repossessed A/c

Date	Particulars	Amount	Date	Particulars	Amount
31-12-18	To Jain Enterprises A/c	88200	31-12-18	By Cash A/c (Sale)	92000
31-12-18	To Interest A/c	2000
31-12-18	To Profit and Loss A/c (Profit on Sale)	1800
		92000			92000

Working Notes

Calculation of Value of Repossessed Vans

Cost Price of 2 Vans   (90000×2)		180000
Less: Depreciation
First Year (180000×30%)	54000
Second Year (126000×30%)	37800	(91800)
Value of Repossessed Vans		88200

Loss of Repossession

Cost Price of 2 Vans   (90000×2)		180000
Less: Depreciation
First Year (180000×20%)	36000
Second Year (144000×20%)	28800	(64800)
Depreciated Values of 2 Vans		115200
Less:  Value of vans at higher depreciation		(88200)
Loss on Respossession		27,200

Conclusion

This illustration helped you understand how to calculate the value of repossessed goods.