Hire Purchase System and Installment System.pptx

“Hire-Purchase Agreement" means an agreement under which goods are let on hire and under which the hirer has an option to purchase them in accordance with the terms of the agreement and includes an agreement under which possession of goods is delivered by the owner thereof to a person on condition that such persons pays the agreed amount in periodical installments, and

(ii) the property in the goods is to pass to such person on the payment of the last of such installments, and

(iii) such person has a right to terminate the agreement at any time before the property so passes.


An installment purchase system is a credit agreement where the buyer takes immediate possession and ownership of goods but pays the full price in installments over time.
his system differs from hire purchase, where the vendor retains ownership until all payments are made. In installment purchases, the buyer can dispose of the goods as they see fit after taking possession.

1. Hire Purchase System & Instalment Purchase System Mr.S.Sivanandham Assistant Professor Department of B.Com CMA Sri Ramakrishna College of Arts & Science (Autonomous) Coimbatore - 641006

2. According to Sec 2 of Indian Hire Purchase Act, 1972 “Hire-Purchase Agreement" means an agreement under which goods are let on hire and under which the hirer has an option to purchase them in accordance with the terms of the agreement and includes an agreement under which- DEFINITION

3. possession of goods is delivered by the owner thereof to a person on condition that such persons pays the agreed amount in periodical installments, and (ii) the property in the goods is to pass to such person on the payment of the last of such installments, and (iii) such person has a right to terminate the agreement at any time before the property so passes.

4. TERMS USED IN HIRE PURCHASE SYSTEM Hire Purchaser / Hirer : The person or business that hires the goods with the option to buy them by making installment payments. Hire Vendor/Owner : The company or individual selling the goods on hire purchase. Ownership remains with the vendor until the final installment is paid. Goods : The items or assets being purchased on a hire purchase basis, like a car, appliance, or equipment.

5. Cash Price : The amount the goods would cost if bought outright in a single payment, without hire purchase. Hire Purchase Price (HPP) : The total price paid over the entire hire purchase term, including all installments and interest, usually higher than the cash price. Down Payment / Initial Payment : The initial amount paid by the hirer at the start of the agreement. It’s typically a percentage of the cash price. Installment / Monthly Payment : The periodic payment made by the hirer, usually monthly, until the hire purchase price is fully paid.

6. What should we Prepare? Table showing Calculation of Interest Journal Entries in the books of Hire Purchaser Journal Entries in the books of Hire Vendor Ledger Accounts in the books of Hirer / Hire Purchaser Ledger Accounts in the books of Hire Vendor

7. Instalment purchase System An installment purchase system is a credit agreement where the buyer takes immediate possession and ownership of goods but pays the full price in installments over time. his system differs from hire purchase, where the vendor retains ownership until all payments are made. In installment purchases, the buyer can dispose of the goods as they see fit after taking possession.

8. Key Features: Immediate Possession and Ownership: The buyer gets immediate use and ownership of the goods upon signing the agreement. Installment Payments: The buyer agrees to pay the total price in installments over a predetermined period. Right to Dispose of Goods: The buyer can sell, transfer, or otherwise dispose of the goods as they wish. No Repossession for Default: The seller cannot take back the goods if the buyer defaults on payments, but can sue for the unpaid balance.