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business struggles to make the monthly instalments. As a result, Ms. Mwajuma is
considering initiating asset repossession proceedings, which could lead to the seizure
of the machinery.

Required:
(a) Explain why Ms. Mwajuma might consider repossessing assets in the context of
hire purchase agreement?
FOR ONLINE READING ONLY
(b) Provide examples of situations where asset repossession could occur and discuss
the potential implications for both Mr. Daudi and Ms. Mwajuma.
(c) Reflect on your understanding of asset repossession and write a concise summary
LANGUAGE EDITING
of what you have learned.
(d) Prepare a presentation based on your findings to be shared with your friends or
LANGUAGE EDITING
in class session.

Accounting for default and repossession
When the purchaser fails to pay any instalments, the hire vendor has the right to take
back the possession of the goods. The amount already paid to the vendor as a part of the

payment for the asset is treated as the hiring charge. In making repossession of goods,
the vendor can either take back the whole asset (complete possession) or just a part of
it (partial possession). The accounting entries in these two scenarios will be passed on
the basis of either complete repossession or partial repossession.

Complete repossession
The hire purchaser closes the hire vendor’s account by transferring the balance of hire
vendor account to hire purchase asset and then finding the profit or loss on reposses-

sion. After repossession, the vendor may incur expenses on repossessed assets and may
sell them again. The accounting entries are as follows:

S/N Transaction Accounting entries
In the books of the hire vendor

1. For closing the account Dr Assets repossessed account xx
of the purchaser: Cr Hire purchaser account xx
With the transfer balance

2. In case repairs and other Dr Assets repossessed account xx
expenses are incurred Cr Bank account xx
and paid on repossession With repairs and other expenses

of assets:

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