2DefinitionsAccording to J.R. Batliboi “Under the Hire Purchase System, goods are delivered to a person, who agree to pay the owners equal periodical instalment, such instalment to be treated as hire of those goods, until a certain fixed amount has been paid, when these goods become the property of the hirer.
3Characteristics of Hire Purchase System Sale of Goods on Credit.Payment in Instalments.Right of Possession and Use of Goods.Ownership of Goods.
4Characteristics of Hire Purchase System 5. For not making the payment of Instalmnet.a. Right of Repossession of Goods to the Seller.b. Forfeiture of Received Instalments.c. Right of receiving the Oustanding Instalment.
5Characteristics of Hire Purchase System Responsibility of Maintenance of Goods in good Condition.Responsibility for Repairs.No right to Sell or Pledge the Goods.
6Advantages of Hire Purchase System Advantages to BuyerAdvantages to SellerAdvantages to Society
7Advantages to Buyer East method of Payment. Purchases of Valuable Goods.Encouragement to Savings.Free repairs.
8Advantages to Seller Increase in Sales. Increase in Income. Easy realisation of Instalments.Close relation between Buyer and Seller.Possibility of Sale of Other goods.
9Advantages to Society. Increase in Production Increase in Employment Increase in Standard of Living.
10Disadvantages of Hire Purchase System Disadvantages to Purchaser.a. High Priceb. Fear of Repossession of Goods.c. Purchase of Unnecessary Goods.d. No Ownership on Goods.e. Mental Disturbance.
11Disadvantages of Hire Purchase System Disadvantages to Seller.a. Need of More Capitalb. Difficulty in Realising Instalments.c. Difficulty in Repossession of Goods.d. More expenditure on Accounting.e. Bear of Loss of Depreciation of goods.
12Disadvantages of Hire Purchase System Disadvantages to Society
13Difference between Hire Purchase System and Credit Sale S.No.Basis of DifferenceHire PurchaseCredit Sale1.ActPurchase Act 1972Sales of goods Act,19302.Nature of ContractHire purchase contractContract of Sale3.Mode of paymentInstallmentCash4.Transfer of OwnershipAfter the payment of last installmnet.On signing the contract of Sale5.Right of repossession of GoodsDefault in the payment.Cannot repossess the goods.6.Repair of GoodsVendorPurchaser7.Right to Sell or Pledge the GoodsNo right to sell or pledge the goodsSell or Pledge.8.Termination of ContractPurchaser can terminate the ContractPurchaser cannot terminate the contract.
14Hire Purchase PriceCash Price + Total Interest = Hire Purchase Price
15Necessary Accounts in the Books of Hire Purchaser Assets AccountVendor’s A/cInterest Account.Depreciation Account.
16Necessary Accounts in the Books of Vendor Purchaser’s Account.Interest Account.
17Calculation of Interest Particulars(2) Cash Price(3) Principal(4) Interest(5) InstalmentParticulars about InstalmentsCash Price of the AssetsAmount of instalment excluding InterestAmount of InterestAmount of instalment including interest
18Instalment Payment System Instalment payment system like hire purchase system is a system of sale in which the payment is made in instalment. Under this system, the buyer becomes the owner of the goods immediately on signing the contract of sale. If the buyer makes default in the payment of instalment, then the seller cannot reposses the goods. He can only sue the buyer for unpaid instalments.
19Definition of Instalment Payment System “ Under an agreement to purchacse and pay by instalments, the goods become the property of the purchaser immediately when he receives the delivery of the same” J. R. Batliboi.
20Characteristics of Instalment Payment System Contract of Credit Sale.Payment in Instalments.Transfer of OwnershipDelivery of Goods.In case of default of payment of instalment.Right of Sale or Mortgage of Goods.