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Write brief notes on( i) Hire purchase (ii) Credit sale (iii) Effects of goods repossessed on hire purchase transactions

a) Write brief notes on
i) Hire purchase
ii) Credit sale
iii) Effects of goods repossessed on hire purchase transactions
b) Fiona Limited bought Motor Vehicle on hire purchase terms. The transactions involved
the following:
i) The cash price Sh.800,000
ii) Hire purchase interest 25%
iii) Deposit 20% of cash price
iv) 5 annual equal installments.
The purchase was effected on 1st January 2015.All payments were made. Depreciation is at a rate of 10% per annum on straight line.
Required:

Asset account (3marks)

Hire purchase company account (4 marks)

Hire purchase interest account (3marks)

C In relation to investment accounting , distinguish the following terms

i) Cum – dividend and Ex – dividend (2 Marks)

ii) Bonus issue and Rights issue (2Marks)

d) ABC Ltd bought sh. 60,000, 10% loan stock of Expo ltd on 1st March 2008 at 90 cum- interest. Interest is payable half yearly on 30th June and 31st December.

Required:

Show the entries in ABC Ltd’s ledger for the year ended 31st December 2008. Ignore income tax. (6 Marks)

Answers

a)i. hire purchase is a transaction entered between two parties where the buyer of goods acquires the good by paying a down payment and installments on specified period as agreed, the ownership of the asset passes to the buyer after making the last installment. any default in payments of installment may make the owner repossess the goods.
ii. Credit sale is where one acquires goods on promise to pay for them on a later date in the future.
iii. effects of repossession of goods
a) the guarantor is freed
b) the owner can resale the asset
c) the hire purchaser loses all his amount paid
d) the contract is terminated
e) the new purchaser acquires good title to the goods
f) the hire purchaser will no longer be granted capital allowances and allowance for depreciation

paul thairu answered the question on December 19, 2017 at 15:57

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Write brief notes on( i) Hire purchase (ii) Credit sale (iii) Effects of goods repossessed on hire purchase transactions

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