Final Accounts on Hire purchase

AKALI Plc. commenced business on 1st January, 2015. The company sells television sets, on hire purchase terms. The hire purchase price including interest is TZS 900,000 for each television set. A customer is required to pay an initial deposit of TZS 225,000 followed by twelve months instalment of TZS 56,250 each. The cost of each television set to JUAKALI Plc. is TZS 600,000. The following trial balance was extracted from JUAKALI Plc.'s books as 31st December, 2021

Details	Debit (TZS)	Credit (TZS)
Ordinary share capital		75,000,000
Non-current assets	7,500,000
Purchases	300,000,000
Annual revenue		180,000,000
Wages and salaries	9,000,000
General expenses	1,125,000
Creditors		18,750,000
Bank overdraft		44,250,000
Bank charges	375,000
Total	318,000,000	318,000,000

During the year ended 31st December, 2021, 400 television sets were sold on hire purchases terms. A dividend of 10% was proposed by the director.

Required:

Prepare the hire purchase income statement for the year ended 31st December, 2021 and a statement of financial position as at 31st December, 2021

Details	Amount (TZS)
Sales	360,000,000
Less: Cost of Sales
Opening Inventory	-
Add: Purchases	300,000,000
Less: Closing Inventory	(60,000,000)
Total Cost of Sales	240,000,000
Gross Profit	120,000,000
Less: Provision for Unrealised Profit	(60,000,000)
Gross Profit After Provision	60,000,000
Less: Expenses
- Wages and Salaries	9,000,000
- General Expenses	1,125,000
- Bank Charges	375,000
Total Expenses	(10,500,000)
Profit Before Tax	49,500,000
Less: Dividends Proposed	7,500,000
Profit Retained	42,000,000

Details	Amount (TZS)
Assets
Non-Current Assets	7,500,000
Current Assets
Inventory	60,000,000
Hire Purchase Debtors	180,000,000
Less: Provision for Unrealised Profit	(60,000,000)
Total Current Assets	120,000,000
Total Assets	187,500,000
Equity and Liabilities
Equity
Ordinary Share Capital	75,000,000
Profit and Loss	42,000,000
Total Equity	117,000,000
Current Liabilities
Trade Payables	18,750,000
Dividend Payable	7,500,000
Bank Overdraft	44,250,000
Total Current Liabilities	70,500,000
Total Equity and Liabilities	187,500,000

1. Unsold stock:

$\text{Number of television sets} = \frac{300,000,000}{600,000} = 500$

$\text{Value of unsold stock} = 600,000 \times (500 - 400) = \text{TZS } 60,000,000$

2. Unrealized profit:

$\text{Unrealized profit} = \text{Outstanding instalment} \times \frac{\text{Gross profit}}{\text{HP selling price}}$

$= 180,000,000 \times \frac{120,000,000}{360,000,000} = \text{TZS } 60,000,000$