INSTALLMENT SALES (B.Com Part - II) Lecture # 3:

INSTALLMENT SALES (B.Com Part - II) Lecture # 3:
Solved Example of Installment Sales:
Ali Company deals in radio and television sets. It sells those sets on installment basis. The summary of transactions for the year ended 31 December 1995 is as follows:
1) Purchase on account Rs.103,500
2) Installment sales Rs.125,000
3) Cost of installment sales Rs.100,000
4) Collection of installment accounts receivable Rs.90,000
5) Payment to accounts payable Rs.95,000
6) Selling expenses paid Rs.1,200
7) General expenses paid Rs.2,300
8) Repossessed merchandise at fair market value Rs.3,000
9) Installment accounts receivable written off by repossession Rs.10,500
REQUIRED
Give journal entries for the year ended 31st Dec. 1995 including adjusting and closing entries.

SOLUTION:
Installment k question ko solve karne k liye 7 chezen ap k pas honi chahiye.
1) Installment sales.
2) Cost of installment sales.
3) Unrealized gross profit.
4) Unrealized gross profit rate.
5) Cash collection.
6) Realized gross profit.
7) Gain or loss on repossession (if available).
In mein se jo chez given hai wo calculate nahi karen ge lekin jo chez question mein given nahi hai wo calculate karen ge.

1) INSTALLMENT SALES:
Installment sales ki amount question mein given hai Rs.125,000. Isliye calculate nahi karen ge.

2) COST OF INSTALLMENT SALES:
Cost of installment sales ki amount bhi question mein given hai Rs.100,000. No need to calculate.

3) UNREALIZED GROSS PROFIT:
Unrealized gross profit ki amount question mein given nahi hai isliye calculate karen ge.
Unrealized gross profit = Installment sales - Cost of intallment sales
Unrealized gross profit = 125,000 - 100,000
Unrealized gross profit = Rs.25,000

4) UNREALIZED GROSS PROFIT RATE:
Unrealized gross profit rate (%) bhi given nahi hai isliye calculate karen ge.
Unrealized gross profit rate = Unrealized gross profit / Installment sales x 100
Unrealized gross profit rate = 25,000 / 125,000 x 100
Unrealized gross profit rate = 20%

5) CASH COLLECTION:
Cash collection bhi question mein given hai Rs.90,000 isliye calculate karne ki zarorat nahi hai.

6) REALIZED GROSS PROFIT:
Realized gross profit question mein given nahi hai isliye calculate karen ge.
Realized gross profit = Cash collection x Unrealized gross profit rate
Realized gross profit = 90,000 x 20%
Realized gross profit = Rs.18,000

7) GAIN OR LOSS ON REPOSSESSION:
Question mein repossession ka zikar hai isliye repossession ki computation bhi hogi.
Installment accounts receivable cancelled = 10,500
Less: Unrealized gross profit fore go (10,500 x 20%) = (2,100)
Book value = 8,400
Less: Merchandise repossessed = (3,000)
Loss on repossession = 5,400
Customer pe Rs.10,500 due thay jis mein se 20% yani Rs.2,100 company ka profit tha. Agar profit nikal den to company ki cost Rs.8,400 thi us merchandise pe. Jab merchandise repossessed ki to market mein us merchandise ki value Rs.3,000 hai jab k company ki cost Rs.8,400 hai yani company ko kam paise mil rahe hein market mein. Company ko loss ho gaya Rs.5,400 ka.

GENERAL JOURNAL:
1) Merchandise 103,500 Dr.
Accounts payable 103,500 Cr.

2) Installment accounts receivable 125,000 Dr.
Installment sales 125,000 Cr.

3) Cost of installment sales 100,000 Dr.
Merchandise 100,000 Cr.

4) Cash 90,000 Dr.
Installment accounts receivable 90,000 Cr.

5) Accounts payable 95,000 Dr.
Cash 95,000 Cr.

6) Selling expenses 1,200 Dr.
Cash 1,200 Cr.

7) General expenses 2,300 Dr.
Cash 2,300 Cr.

8) Merchandise repossessed Rs.3,000 Dr. (with repossessed amount)
Unrealized gross profit 2,100 Dr. (with DGP fore go amount)
Loss on repossession 5,400 Dr. (with loss on repossession amount)
Installment accounts receivable 10,500 Cr. (with installment accounts receivable cancelled amount)

ADJUSTING ENTRIES:
1) Installment sales 125,000 Dr.
Cost of installment sales 100,000 Cr.
Unrealized gross profit 25,000 Cr.

2) Unrealized gross profit 18,000 Dr. (with realized gross profit amount)
Realized gross profit 18,000 Cr. (with realized gross profit amount)

CLOSING ENTRIES:
1) Expense and revenue summary 8,900 Dr.
Selling expenses 1,200 Cr.
General expenses 2,300 Cr.
Loss on repossession 5,400 Cr.

2) Realized gross profit 18,000 Dr.
Expense and revenue summary 18,000 Cr.

3) Expense and revenue summary 9,100 Dr.
Capital/retained earnings 9,100 Cr.

Saray expenses including loss debit mein record kiye thay isliye close karne k liye sab ko creidt kiya aur realized gross profit credit kiya tha isliye close karne k liye debit mein record kiya. Debit aur credit ka difference net profit ya loss ko show karta hai. Expense and revenue summary ka credit amount zyada hai which means k net profit hua hai. I hope k closing ka process pata hoga ap sab ko.