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Question

Under the hire-purchase arrangement, ownership of the asset remains with the supplier until the dues are settled.

A
True
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B
False
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Solution

The correct option is A True

Hire purchase system-A person (buyer) wants to purchase an asset, but does not want to make lump sum payment then he may opt to pay in installments if vendor agrees. This enables buyer to use the asset while paying for it in installments over an agreed period of time. This arrangement is known as hire purchase. Some terms in this agreement are as follows:

a. Hire purchaser- it is person who obtains goods (asset) and its right to use from vendor under the agreement.

b. Hire vendor- it is the person who delivers goods along with its possession to the hire purchaser.

  • Following are some of the features of hire purchase agreement:

1. Possession- Hire vendor transfers only possession of asset to purchaser immediately after contract for hire purchase is made.

2. Installments- Goods are delivered to the purchaser on the condition that he must pay the amount in periodical installments.

3. Hire purchase installment- Each installment consists of two elements- finance charge(interest) and capital payment(principal).


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