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Hire Purchase System
Hire Purchase System
Hire Purchase System
Hire purchase system means when goods are sold at credit for which payment is made by the
purchase in installment over a period of time known as hire purchase system.
It is a system where the sale of goods deliveries the goods to the buyers without transferring
of ownership of goods the payment of installment calculated and after the payment of last
installment the ownership will be transferred to the bias if the bias is unable to paid by
buyers will be treated as his charges.
It is system under which purchase the goods on credit and agreed to pay the value of assets in
Ascertain installment with particular rate of interest and he is only eligible to ownership after
payment of last installment.
DEFINITION
According to section 2[ c ]of the hire purchase act 1972 hire purchase is an agreement where
in the goods are let on hire and under which has an option to purchase them in according
accordance with the terms of the agreement and includes an agreement under which
1] Position of goods is delivered by the owner there of a person at a condition that such
person pays the agreed amount in periodical installments.
2] The property in the goods is to pass two such person on the payment of the last of such
instruments.
3] Search person has a right to terminate the agreement at any time before the property so
passes.
FEATURS OF HIRE PURCHASE SYSTEM
6] The hire purchase system governed by the hire purchase act at1972.
7] The hire vendor has option to retain the goods before last installment paid.
8] Theamounttowordscashprizeisretainedascapitalexpenditureandtowards
interest is retained with revenue expenditure.
DIFFERENCE S BETWEEN HIRE PURCHASE SYSTEM AND SALE
The person who purchased the goods from higher vendor under fire system.
Purchase goods from higher vendor who hired the option of purchasing for hiring the goods
and hire purchase system called hire purchaser.
HIRE VENDOR:-
The person who sells the goods to hire purchase under hire purchase system.
He is a person who receives the installment amount for sales the goods on hire purchase
system.
CASH PRICE:-
It refers to price payable at the time of purchase is a price value payable who receives by
the hire vendor at the time of purchase.
It refers to the price at which goods are sold under hire purchase system the price includes
the price of goods and percentage of interest.
INSTALMENTS PRICE:
It is a payment or part of payment payable by the hire purchase the hire vendor in periodic
interest.
DOWN PAYMENT:
It is a payment or interest payable by the hire purchase to the higher vendor as advance at
the time of making hire purchase agreement. Image advance payment payable by the
purchaser to the vendor at the time of purchase.
It refers to the price of the goods after arrival of deducting of delivery charges registration
charges and insurance charges.
HIRE PURCHASE CHARGES
It refers to differences between net hire purchase price and net cash price as the goods in
short it is the amount of interest charges.
The hire purchase act of 1972 registration the maximum amount of interest to be 30% of cash
installment. the hire purchase charges can be calculated by the using formula
R=RATE OF INTEREST
1. ASSET ACCRUAL METHOD: under this method the asset is deemed to be acquired
gradually on the basis of cash prize paid hence the asset is recorded at the cash price actually
paid under this method asset account is debited only to the except of cash prize in each
installment .
2. OUT RIGHT PROPERTY METHOD: under this method as it is deemed to be required
as soon as if is received into possession and the asset is recorded at full cash prizes it is also
called as credit purchase with interest method.
Journal entries in the books of the Hire Vendor under Asset Accrual Method.
DATE PARTICULARS L/F DEBIT CREDIT
1. For assets sold under hire purchase system XX