original hire purchase
TRANSCRIPT
-
8/6/2019 Original Hire Purchase
1/23
Presentation by
-C.Dinesh.
-
8/6/2019 Original Hire Purchase
2/23
Hire Purchasey Hire purchase is used to buy expensive items which a
person cannot afford to pay outright: e.g. a car
yA down payment is usually paid and the balance ispaid over several months (monthly instalments).
-
8/6/2019 Original Hire Purchase
3/23
DEFINITIONy Goods are let out on finance by a finance company to
the hire purchase customer
y Buyer is required to pay an equal amount of periodicinstallments during a given period
y Ownership transfers at the payment of the lastinstallment
-
8/6/2019 Original Hire Purchase
4/23
Hire purchase - definitionAn agreement under which goods are let on hire andunder which the hirer has an option to purchase them
in accordance with the terms of the agreement.
-
8/6/2019 Original Hire Purchase
5/23
What is hire purchase ?y Here possession of goods is transferred immediately,
but payment is made in installments. Ownership is
transferred after all the installments have been paid.
-
8/6/2019 Original Hire Purchase
6/23
characteristicsyPossessionyOwnership upon the full
paymentyInstallment buyingySocial innovationyExpands economyyAdditional income
-
8/6/2019 Original Hire Purchase
7/23
Terms of hire purchaseIn hire purchase, the purchaser has to follow theagreement and he cannot terminate the contract. The
seller can however, terminate the agreement in case ofdefault of purchaser. Hire purchase price is higherthan cash price, because interest element is added inthis price
-
8/6/2019 Original Hire Purchase
8/23
Eligibility to enter into HP transactions
y People with a regular and stable income, and capacity topay installments from the current income
y The person must be competent to enter into a contract .Minor is not eligible
y Foreigners and people not having permanent residence inthe country are disqualified for availing such forms of
credit sales.
-
8/6/2019 Original Hire Purchase
9/23
Advantages & disadvantagesy No immediate cash
y Easy possession
y
Economic growthy Relief to buyer
y Reputed buyers
y May lead to bankruptcy
y
Buyer has to mortgage hisproperty
y Buyer may incur loss
y May lose paid installments
in the event of defaulty It is expensive
y Loss to seller in the eventof default by the buyer.
-
8/6/2019 Original Hire Purchase
10/23
Process of Hire Purchasey The Dealer, contracts with finance co. for financing his hire
purchase deals.y The customer selects the goods forHP, and dealer arranges for
the complete set of documents.y Down payment by customer on completion of proposal form.y Dealer sends documents to finance co. with request to purchase
the goods, and accept theHP transaction.y The finance co. signs the agreement and sends copy along with
EMI details to dealer.y Dealer delivers the goods to the customer, property passes on to
the finance co..y Hirer pays EMIs, and on last payment , the ownership passes on
to him, with loan completion certificate by the finance co.
-
8/6/2019 Original Hire Purchase
11/23
Many kinds of business asset are suitable for
financing using hire purchase including:
y - Plant and machinery
y - Business cars
y - Commercial vehiclesy - Agricultural equipment..
y - Hotel equipment
y - Medical and dental equipment
y - Computers, including software packages
y -Office equipment
-
8/6/2019 Original Hire Purchase
12/23
Consumer Credity Includes all asset based financing plans offered to
individuals. (eg. Cars, scooters,VCRs, TVs,Refrigerators, washing machines etc., personalcomputers.)
y Main supplier of consumer credit are MultinationalBanks, commercial banks, Finance companies..etc
-
8/6/2019 Original Hire Purchase
13/23
Accounting entries
-
8/6/2019 Original Hire Purchase
14/23
What entry is made on purchase
of an asset on hire purchase ?
Asset on hire purchase debit
to hire purchase vendor a/c credit (with the
cash price of assets)
-
8/6/2019 Original Hire Purchase
15/23
What entry is made on payment of
an asset purchased on hire
purchase ?
Hire vendor ac debit
to bank
-
8/6/2019 Original Hire Purchase
16/23
What entry is made on payment of
an asset purchased on hire
purchase ?
Interest on hire purchase debit
to hire vendor a/c credit
-
8/6/2019 Original Hire Purchase
17/23
What entry is made about
depreciation of an asset
purchased on hire purchase ?
Depreciation on asset a/c debit
to asset account credit
SECOND ENTRY
p & l a/c debit
to depreciation credit
-
8/6/2019 Original Hire Purchase
18/23
What entry is made in the books
of vendor on hire purchase sale ?
Hire purchaser a/cdebit
to hire purchase sale a/c credit (with the cash price of goods)
WHEN PAYMENT IS RECEIVED
bank a /c debit
to hire purchaser a/c credit
FOR INTERESThire purchaser debit
to interest on hire purchase sale a/c credit
-
8/6/2019 Original Hire Purchase
19/23
What is repossession ?y If hire purchaser doesnt pay instalments, the
vendor will take repossession of the assets.
y There are two types of repossession :
1. full repossession
2. partial repossession
-
8/6/2019 Original Hire Purchase
20/23
What is the entry in the books ofpurchaser on full repossession ?
Hire ventor a/c debit
to asset a/c (from the value of asset as per
accounts)
-
8/6/2019 Original Hire Purchase
21/23
What is the entry in the books ofvendor on full repossession ?
Goods repossession a/c debit
to hire purchaser account credit
(a new account of goods repossession will be
opened)
-
8/6/2019 Original Hire Purchase
22/23
What is the accounting entry inthe case of partial repossession ?
In the case of full repossession, the hire
purchaser will close the account of ventor and
vendor will close the account of purchaser. But
in case of partial repossession, the accouts willremain open and the account will show balance
for remaining assets
-
8/6/2019 Original Hire Purchase
23/23
THANK U!!!