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the price which could be paid if the product/property was acquired in outright purchase.
During the hire purchase agreement, it may happen that the hire purchaser fails to pay
the instalments. This will require the hire vendor to take back the asset from the hire
purchase without any refund to the hire purchaser.

Activity 8.1
FOR ONLINE READING ONLY
Using both the internet and library resources gather pertinent information that will
assist you in completing the following tasks:
(a) Identify and explain the key characteristics of a hire purchase agreement. How
does it contrast with a conventional purchase? Illustrate with examples where
a hire purchase might be beneficial for acquiring assets for a nature reserve or
LANGUAGE EDITING
conservation project.
(b) Summarise your understanding of the nature of hire purchase in two pages by
reflecting on the key points you have learned.
Note that, the goal of this activity is to deepen your understanding of the nature
of hire purchase agreements and their application in real-world scenarios.

Terminologies used in accounting for hire purchase
(a) Hire vendor: A person who delivers the assets along with their possessions to hire
purchaser under the hire purchase agreement.

(b) Hire purchaser: A person who obtains assets and the right to use them but not
ownership, from hire vendor under hire purchase agreement.
(c) Hire purchase price: The total amount payable by hire purchaser to obtain ownership
of the asset purchased under hire purchase agreement. The hire purchase price
comprises of cash price plus hire purchase interest.

(d) Hire purchase interest: An amount of money paid by hire purchaser to hire vendor,
above the cash price, as a compensation for time value of money and risk on deferred
instalments. For example, an asset might be sold for TZS 2,500,000 but if sold on
hire purchase the sale price becomes TZS 3,000,000. In this case, TZS (3,000,000-
2,500,00)= 500,000 is Hire purchase interest.
(e) Hire purchase instalment: An amount which the hire purchaser pays in regular
intervals up to a certain period to obtain ownership of asset as specified in the hire
purchase agreement. For example, an asset might be sold for cash at TZS 5,000,000.
But if sold on hire purchase the sale price becomes 5,400,000, which should be
paid in full on monthly basis within 6 months. In this case, the monthly instalment
becomes TZS 900,000, while the interest is TZS 400,000.
(f) Cash price: An amount to be paid by a buyer on outright purchase in cash.

(g) Down payment: An initial payment made to the hire vendor by a hire purchaser at
the time of entering into hire purchase agreement.

Student’s Book Form Five
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