You know when the hire purchase customer commits default in payment of instalments, the vendor may repossess the goods. The amount of instalments unpaid (also termed as instalments due) in respect of such goods are shown on the credit side of the first part of the Hire Purchase Trading Account.
If the market value of such goods is given or they have been sold out immediately on repossession, the difference between the unpaid amount and the market value (or sale value, if sold out) is treated as loss or profit on goods repossessed. If it is loss, the same is debited in the second part of the Hire Purchase Trading Account, and if it is profit (it is rare), the same can be shown on its credit side. The difficulty arises when the market value or sales value of repossessed goods is not available. In such a situation, you will have to adjust the loading involved in the unpaid instalment in respect of such goods because its true value is equal to its proportionate cost. Thus, having credited the first part of Hire Purchase Trading Amount with amount of the unpaid instalments, you must debit the amount of loading included in the unpaid instalments. Alternatively, if you are preparing Hire Purchase Trading Account without dividing it into two parts, credit the Hire Purchasing Trading Account with its true value/market value/sale value itself. In that case, no adjustment will be necessary.
