Podcast
Questions and Answers
What condition must be met for ownership of goods to transfer from the hire vendor to the hire purchaser?
What condition must be met for ownership of goods to transfer from the hire vendor to the hire purchaser?
- The goods must be used for a minimum period.
- The hire purchaser must make a down payment.
- All interest charges must be settled.
- All installments must be paid in full. (correct)
What happens if the hire purchaser fails to pay an installment?
What happens if the hire purchaser fails to pay an installment?
- An additional fee is imposed but the vendor cannot seize the goods.
- The hire vendor can seize the goods and adjust payments made against hire charges. (correct)
- Ownership of the goods automatically transfers to the hire purchaser.
- The hire vendor must give a grace period of six months.
In a hire purchase agreement, what is the term for the initial amount paid by the purchaser?
In a hire purchase agreement, what is the term for the initial amount paid by the purchaser?
- Installment
- Total charge
- Final payment
- Down payment (correct)
How is the accounting treatment for hire purchase generally classified?
How is the accounting treatment for hire purchase generally classified?
Which of the following describes the installment purchase system?
Which of the following describes the installment purchase system?
What is the nature of the monthly payments made by the hire purchaser in a hire purchase agreement?
What is the nature of the monthly payments made by the hire purchaser in a hire purchase agreement?
What is the common misconception about hire purchase agreements regarding ownership?
What is the common misconception about hire purchase agreements regarding ownership?
Which of the following best describes the term 'hire charges' in a hire purchase agreement?
Which of the following best describes the term 'hire charges' in a hire purchase agreement?
What occurs to ownership of goods in a Hire Purchase Contract?
What occurs to ownership of goods in a Hire Purchase Contract?
What happens in the event of non-payment in a Hire Purchase agreement?
What happens in the event of non-payment in a Hire Purchase agreement?
What characterizes the accounting for Hire Purchase transactions?
What characterizes the accounting for Hire Purchase transactions?
What term refers to the right of a vendor to reclaim an asset in a Hire Purchase agreement upon default?
What term refers to the right of a vendor to reclaim an asset in a Hire Purchase agreement upon default?
In which situation would a Hire Purchase Contract be most beneficial to a purchaser?
In which situation would a Hire Purchase Contract be most beneficial to a purchaser?
How are payments recorded in the books of a hire vendor?
How are payments recorded in the books of a hire vendor?
What distinguishes an Installment Purchase Contract from a Hire Purchase Contract?
What distinguishes an Installment Purchase Contract from a Hire Purchase Contract?
Which of the following statements about the accounting implication in Hire Purchase is correct?
Which of the following statements about the accounting implication in Hire Purchase is correct?
What is the main difference in ownership transfer between hire purchase and installment purchase?
What is the main difference in ownership transfer between hire purchase and installment purchase?
Which of the following describes a key implication of the hire purchase system regarding goods recovery?
Which of the following describes a key implication of the hire purchase system regarding goods recovery?
In the case of forfeiture of payments, what typically happens in a hire purchase contract?
In the case of forfeiture of payments, what typically happens in a hire purchase contract?
What do the accounting implications differ between hire purchase and installment purchase primarily affect?
What do the accounting implications differ between hire purchase and installment purchase primarily affect?
Which term accurately describes a hire purchase system?
Which term accurately describes a hire purchase system?
Which of the following statements is true regarding installment purchases?
Which of the following statements is true regarding installment purchases?
Study Notes
Hire Purchase and Installment Account
- Objectives of Unit 1: Understand concepts of hire purchase and installment systems, and distinguish between the two.
Hire Purchase System
- A hire purchase contract involves two parties: the hire vendor (seller) and the hire vendee (buyer).
- Goods are delivered to the buyer with the agreement of payment in installments.
- Ownership of the goods transfers to the buyer only after the last installment is paid.
- If the buyer misses a payment, the vendor can seize the goods and deduct amounts paid against hire charges.
- Initial payment, also called down payment, is required before installments begin.
- Example: For a television costing Rs. 15,000, an initial payment of Rs. 5,000 is followed by three monthly installments with 5% annual interest.
Installment Purchase System
- Also known as the deferred installment system.
- Immediate transfer of both possession and legal ownership to the buyer upon delivery.
- The installment price includes both cash price and interest for delayed payment.
Differences between Hire Purchase and Installment Purchase
- In hire purchase, ownership is retained by the seller until all installments are paid, whereas in installment purchase, ownership transfers immediately.
- Hire purchase allows the vendor to reclaim goods for missed payments, while installment purchase does not have this provision.
Accounting Entries in Hire Purchase System
- Objectives of Unit 2: Manage accounting entries for both hire vendor and hire vendee.
- Two accounting methods for hire purchaser:
- Recording asset at full cash price: Considered the owner from the transaction outset.
- Recording asset at cash price actually paid: Reflects true cost incurred.
General Notes
- The unit emphasizes understanding contracts and legal distinctions between payment systems.
- Suggested readings and model questions are available for deeper learning.
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Description
This quiz focuses on the fundamentals of hire purchase and installment purchase systems as presented in Unit 1. It covers key concepts, differences between the two systems, and objectives to enhance understanding. Perfect for students looking to reinforce their knowledge of these financial concepts.
