Question

D. Deni commenced business on 1 April 2014 by depositing Sh.8 million into the business bank account. All receipts and payments were channelled through this business account. During the year ended 31 March 2015

D. Deni delivered 5,000 bicycles to his customers both on hire purchase terms and on regular cash and credit sales. He also sells the bicycles in the open market at retail price of Sh.8,000 each. In order to sell goods at hire purchase price he adds 15% to retail price to cover additional risks and to compensate himself for the extended collection period.

The hire purchase terms require a down payment of 25% of the hire purchase price with the balance in 20 equal monthly instalments which are payable at the end of the month.

The bicycles sold on hire purchase were as follows:

Number of bicycles

1 July 2014 400

1 September 2014 400

1 December 2014 500

1 February 2015 700

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Total 2,000

The hire purchase customers paid promptly on the due dates except for three customers who bought 10 bicycles in September 2014 but only made the down payments and the first two instalments. All the 10 bicycles were repossessed in March 2015. They were then repaired at a cost of Sh.3,000 each and sold on cash for Sh.5,600 each.

During the year D. Deni bought 6,000 bicycles at Sh.5,600 each; all on open credit terms of net 30 days. He paid staff salaries of Sh.2 million and general expenses Sh.1.5 million.

Additional information

1. Deni withdrew Sh.60,000 per month beginning June 2014 for private use

2. The amounts owing to suppliers as at 31 March 2015 was Sh.3.6 million and that owing by non-hire purchase customers was Sh.2.5 million.

3. The bills received in respect of rent and rates amounting to sh.125,000 were not yet paid at the end of the year.

4. All expenses, except for repairs on repossessions, are apportioned between general and hire purchase businesses on the basis of units sold.

5. Hire purchase interest is to be accounted for by using the actuarial method.

Required:

a. For the year ended 31 March 2015:

i. Hire purchase Debtors Account; (8 marks)

ii. Repossessions Account; (2 marks)

iii. Hire purchase Trading profit and Loss Account; (5 marks )

iv. General Trading, Profit and Loss Account; (5 marks)