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(h) Possession: A condition of having a control over the goods/assets without regard
to their ownership. The hire vendor transfers only possession of the goods to the
hire purchaser immediately after the agreement for hire purchase is made.
(i) Repossession: A condition occurring when a hire purchaser defaults payment of one
or more instalments. Under this condition, the hire vendor takes back the goods/
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assets without making any compensation to the hire purchaser.
(j) Ownership: A state of a legal possession and control over the goods/assets. The
hire vendor passes to the hire purchaser the right to possess but not to own the asset
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involved.
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(k) Default: Refers to the failure of the hire purchaser to meet the terms of the hire
purchase agreement e.g., missing an instalment payment.
(l) Termination: Refers to the end of the hire purchase agreement – can occur when
the hire purchaser has paid all instalments and now owns the asset or when the hire
purchaser or hire vendor ends the agreement prematurely under certain conditions.
(m) Depreciation: The term reflects the decrease in value of the asset over time, which
can be important in accounting for assets acquired through hire purchase.
Exercise 8.1
(1) Tumaini Ltd., a newly established company, is considering purchasing a photocopy
machine from Kariakoo Auto Supplies (KAS) Ltd. The Marketing Manager of
KAS Ltd. has provided two quotations: one for an outright purchase and the other
for a hire purchase. However, the Finance Manager of Tumaini Ltd. is unfamiliar
with the latter method.
Required: Assist the Finance Manager by explaining the following:
(a) The hire purchase and hire purchase agreement.
(b) The similarities and differences between a hire purchase and an outright purchase.
(2) Prove that you comprehend the following ideas in hire purchase business agreements
using local examples to help you grasp them:
(a) Discriminating between hire purchase interest and hire purchase price.
(b) Elaborating on the difference between hire purchase down payment and hire
purchase instalments.
(c) Highlighting the distinctions between default and termination of a hire purchase
contract.
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