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Chapter
                                     Hire purchase accounting
            Chapter eight: Hire purchase accounting
             Eight


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            Introduction

                       LANGUAGE EDITING
             Hire purchase system enables individuals to acquire valuable assets, such as cars
            and appliances, by making instalment payments over time, allowing them to use the
 LANGUAGE EDITING
            asset while still paying for it. In this chapter, you will learn meaning, nature and
            terminologies of hire purchase accounts. Also, you will learn how to prepare and
            maintain records related to hire purchase transactions.  The competencies developed
            will enable you to demonstrate an understanding of the concepts and principles
            applied in the accounting of hire purchases and have ability to prepare and maintain
            records related to hire purchases.


                                                      pay for the goods at a higher price than the
                    Hire purchase without keeping
                    records                           price that could be paid on outright cash
                                                      purchase to compensate the hire vendor for

           Definition and nature of hire              time value of money and risk on deferred
           purchase agreements                        instalments. The hire purchaser will also be
           Hire purchase is a method of purchasing    required to make an initial payment (down
           assets whereby the buyer (hire purchaser)   payment) immediately after signing the
           enters into an agreement with the seller (hire   agreement, followed by a series of regular
           vendor) for the exchange of assets by paying   instalments for the identified period.
           through a series of regular instalments. This  Hire purchase system differs from the
           system allows the seller to retain ownership  outright purchase in several ways. Unlike the
           of the sold assets until the final instalment is  outright purchase system, in hire purchase,
           paid. Hire purchase method is extensively  ownership of the assets is not transferred to
           applied in the acquisition of non-current  the hire purchaser until the final instalment is
           assets such as equipment, machinery, motor  paid and the hire purchaser agrees. Outright
           vehicle, and the like.                     purchase also involves a single payment for
           The agreement between the hire purchaser  the assets, while the hire purchase system
           and the hire vendor is known as the hire  is characterised by a series of instalments
           purchase agreement. The hire purchase  over an agreed period. Additionally, price
           agreement requires the hire purchaser to  paid by the hire purchaser is higher than



            Student’s Book Form Five
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