Hire Purchase and Installment Payment Systems.

Definitions According 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.

Characteristics of Hire Purchase System Sale of Goods on Credit. Payment in Instalments. Right of Possession and Use of Goods. Ownership of Goods.

Characteristics 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.

Characteristics of Hire Purchase System Responsibility of Maintenance of Goods in good Condition. Responsibility for Repairs. No right to Sell or Pledge the Goods.

Advantages of Hire Purchase System Advantages to Buyer Advantages to Seller Advantages to Society

Advantages to Buyer East method of Payment. Purchases of Valuable Goods. Encouragement to Savings. Free repairs.

Advantages to Seller Increase in Sales. Increase in Income. Easy realisation of Instalments. Close relation between Buyer and Seller. Possibility of Sale of Other goods.

Advantages to Society. Increase in Production Increase in Employment Increase in Standard of Living.

Disadvantages of Hire Purchase System Disadvantages to Purchaser. a. High Price b. Fear of Repossession of Goods. c. Purchase of Unnecessary Goods. d. No Ownership on Goods. e. Mental Disturbance.

Disadvantages of Hire Purchase System Disadvantages to Seller. a. Need of More Capital b. Difficulty in Realising Instalments. c. Difficulty in Repossession of Goods. d. More expenditure on Accounting. e. Bear of Loss of Depreciation of goods.

Disadvantages of Hire Purchase System Disadvantages to Society

Difference between Hire Purchase System and Credit Sale S.No. Basis of Difference Hire Purchase Credit Sale 1. Act Purchase Act 1972 Sales of goods Act,1930 2. Nature of Contract Hire purchase contract Contract of Sale 3. Mode of payment Installment Cash 4. Transfer of Ownership After the payment of last installmnet. On signing the contract of Sale 5. Right of repossession of Goods Default in the payment. Cannot repossess the goods. 6. Repair of Goods Vendor Purchaser 7. Right to Sell or Pledge the Goods No right to sell or pledge the goods Sell or Pledge. 8. Termination of Contract Purchaser can terminate the Contract Purchaser cannot terminate the contract.

Hire Purchase Price Cash Price + Total Interest = Hire Purchase Price

Necessary Accounts in the Books of Hire Purchaser Assets Account Vendor’s A/c Interest Account. Depreciation Account.

Necessary Accounts in the Books of Vendor Purchaser’s Account. Interest Account.

Calculation of Interest Particulars (2) Cash Price (3) Principal (4) Interest (5) Instalment Particulars about Instalments Cash Price of the Assets Amount of instalment excluding Interest Amount of Interest Amount of instalment including interest

Instalment 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.

Definition 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.

Characteristics of Instalment Payment System Contract of Credit Sale. Payment in Instalments. Transfer of Ownership Delivery of Goods. In case of default of payment of instalment. Right of Sale or Mortgage of Goods.