To calculate the profit or loss on hire purchase using the Debtors Method, you need to consider the following factors:
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1. Opening stock on hire (at cost) – This is the value of goods that were already out on hire at the beginning of the year.
2. Closing stock on hire (at cost) – This is the value of goods still out on hire at the end of the year.
3. Installments due – This is the total amount due from customers for the hire purchase agreements.
4. Cash received – The total amount of cash received during the year.
Here’s how you can calculate the profit or loss:
1. Calculate the profit or loss on goods sold during the year:
Opening stock on hire (at cost) – Rs. 6,000
Closing stock on hire (at cost) – Rs. 6,900
Goods sold during the year = Opening stock – Closing stock = 6,000 – 6,900 = -900 (a loss)
2. Calculate the total cash received during the year:
Cash Received – Rs. 16,000
Installments Due – Rs. 1,000
Total Cash Received = Cash Received + Installments Due = 16,000 + 1,000 = Rs. 17,000
3. Calculate the profit on hire purchase:
Profit on hire purchase = Total Cash Received – (Goods sold during the year + Opening stock on hand – Closing stock on hand) + Installments Due
= 17,000 – (-900 + 1,000) = 17,000 – 100 = Rs. 17,100
4. Calculate the profit as a percentage of the cost of goods sold:
Profit as a percentage of cost = (Profit on hire purchase / Goods sold during the year) * 100
= (17,100 / 900) * 100 ≈ 1,900%
So, the profit on hire purchase under the Debtors Method is approximately 1,900%.