Questions and Answers
What happens if the hire purchaser fails to pay any of the instalments in a hire purchase agreement?
The hire vendor takes back the asset without refunding earlier payments
How are amounts received from the hire purchaser through down payment and instalments treated by the hire vendor?
As hire charges
What is the term used for the act of the hire vendor recovering possession of the asset?
Repossession
How are repossessed assets accounted for?
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What is the term used for the hire vendor taking back the whole of the asset in a repossession?
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Study Notes
Hire Purchase Agreement Default
- If the hire purchaser fails to pay any instalments, the hire vendor can take action to recover the asset.
Treatment of Payments
- Amounts received from the hire purchaser are treated as consisting of two parts:
- Down payment, which is payment of part of the purchase price
- Instalments, which are periodic payments towards the remaining purchase price
Repossession
- The act of the hire vendor recovering possession of the asset is termed repossession.
Accounting for Repossessed Assets
- Repossessed assets are accounted for by the hire vendor, with the goal of selling them to recover losses.
Total Repossession
- The hire vendor taking back the whole of the asset in a repossession is referred to as total repossession.
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