BCOM 1st Year Hire Purchase And Instalment Purchase System Short Question Answer Study Notes

BCOM 1st Year Hire Purchase And Instalment Purchase System Short Question Answer Study Notes : You will get full Information related to BCOM All Study Material Question Answers Notes Unit Wise Chapter Wise Syllabus Of the Content Topic Wise Notes Meaning of hire purchase contract, Legal provision Regrading Hire purchase Contract, Accounting records for goods of substantial sale values and accounting records for goods of small values, Instalment Purchase System, After sales service All topic content In over site parultech.com.

Section A


Q.1. What do you mean by hire-purchase system?

Ans. Hire-purchase system is defined as, a system whereby the leage B owner of the goods let them on hire for periodic payments by hirer ‘Under upon an agreement that when a certain number of payments have been completed, the absolute property in the goods will pass to hirer. It may be said that the hire-purchase system is a special system of credit purchase and sale of goods. Under this system a written agreement is entered into between buyer (called owner by equal periodical as hire-purchaser) and the seller (called as hire-vendor) for the purchase and sale of certain goods whereby goods are delivered to the hire of to the hire-purchase immediately on his signing the agreement on the condition then he will pay the purchase price by means of specified periodical instalments. 

The main feature of this system is that though the purchaser

when those goods become thel takes delivery of the goods immediately on signing the agreement and acquires right to use the goods but he acquires the ownership in the property only when all the instalments have been paid. Thus, till the last instalment is paid, the title or ownership in the goods still remains with the hire-vendor.

Q.2. Discuss salient features of hire-purchase system.

Ans. The salient features of hire-purchase system are as follows:

1. Hire-purchase system is governed by Hire-purchase Act, 1972. 

2. It is an agreement of hiring. 

3. It is an agreement between hirer and hire-vendor. 

4. Terms and conditions between the parties are entered and recorded in a document called

hire-purchase agreement. 

5. Cash price of goods is paid in instalment on agreed terms.

6. The title of goods passes on last payment. 

7. The hire-vendor can take possession of goods if hirer is failed to pay instalment. 

8. The hirer is not responsible for risk of loss of goods, till the ownership is transferred. 

9. The hirer cannot mortgage, hire, sell or pledge the goods.

10. The hirer has not a right to terminate the agreement at any time before property so passes. 

BCOM 1st Year Hire Purchase And Instalment Purchase System Short Question Answer Study Notes

Q.3. Discuss the advantages of hire-purchase system.

Ans. Hire-purchase system is advantageous for purchaser and seller both. Following are the main advantages of this system:

Advantages for the Purchaser: These are as follows: 

1. A person of limited financial resources can purchase costly articles. 

2. Due to payment being made in instalments, it is easy to pay the purchase price of the goods. 

3. Purchaser is bound to check his extravagance and to be economic due to payment of instalments. 

4. If the vendor has given guarantee for the free repair and maintenance of the goods, he can get his article easily repaired during guarantee period because the vendor has realised from him for repair.

Advantages to the Vendor: These are as follows: 

1. Hire-vendor can increase his sales considerably. 

2. Due to repossession clause in agreement the hire-purchaser usually make timely payment of the instalments. 

3. Due to frequent visit to purchaser, the vendor gets opportunity of enhancing his intimacy with them and he is able to sell them his other articles also.

4. The vendor can get loan easily from the financial institutions because of his capability of loan repayment out of collections from his customers. 

Q.4. What is the difference between hire purchase and credit sales? 

Ans. The difference between hire-purchase and credit sales are as follows:

1. Nature: Hire-purchase is a contract of hiring coupled with an option to purchase whereas in the contract of credit sales, there is no elements of hire.

2. Method of Payment: In hire-purchase system, the purchase price is paid in instalments whereas in credit sales, the sum due is usually paid in lump sum.

3. Time of Payment: Under hire-purchase, the payment is made at specified intervals whereas in credit sales, payment can be made at any time.

4. Interest on Credit Amount: In hire-purchase, instalments include interest for deferred payment together with the price of goods whereas in credit sales, no interest is charged by the seller if the payment is made within credit period.

5. Ownership: Under hire-purchase, the purchaser acquires ownership rights over the goods after payment of final instalment whereas in credit sales, ownership right is transferred to the purchaser immediately on getting possession of goods.

6. Right to Sale or Transfer of Goods: Hire-purchaser can neither sell nor transfer the goods to another person without the consent of vendor on the other hand, incredit sales purchaser can sell, pledge or transfer the goods to another person without making payment of the value of goods.

7. Right of Repossession: The hire-vendor can repossess the goods on default in payment of instalments by the purchaser whereas in case of credit sales, the vendor can only sue for the recovery of unpaid amount.

Q.5. What do you mean by instalment payment system?

Ans. Instalment payment system is just like the normal sale, only thing the purchaser will be having the facility to pay the purchase price in certain numbers of instalment mutually agreed by seller and purchaser.

‘Under instalment system, the goods become the property of the purchaser immediately he receive delivery of the same!

Thus, the legal position of this type of contract is that the property in the goods is transferred to the purchaser immediately on signing the agreement. If the purchaser makes any default in payment any instalment, the seller has no right to repossess the goods, he can only sue the purchaser for unpaid balance. It is, therefore, essential that adequate provision be made by the seller for possible bad debts resulting from non-payment of future instalments. On the basis of above discussion, following points may be pointed out:

1. The sale of goods is on credit.

2. Price of goods is realised in instalments. 

3. Purchaser acquires possession of goods immediately after signing the


4 The ownership of goods is transferred to the purchaser immediately after sining the agreement.

5. In case of default in payment of instalment the vendor cannot claim for repossession of the goods. He can only take action at law for the recovery of unpaid instalments.

 6. The purchaser has the right to sell, pledge and transfer the goou instalment is paid.

BCOM 1st Year Hire Purchase And Instalment Purchase System Short Question Answer Study Notes

Q.6. What is the difference between hire-purchase system and instalment purchase system?

Ans. Difference between hire-purchase system and Instalment Purchase System

S.No. Basis of difference Hire-purchase system Instalment purchase system
  Operation This system operates on the basis of hire-purchase agreement. This system operates on the basis of instalment purchase agreement.
  Nature of agreement This system is based on a agreement of hiring. This system is based on agreement of sale.
  Statutory governance This is governed by the hire-purchase Act, 1972. This is governed by the sale of goods Act, 1930.
  Parties in agreement The parties entered into agreement, under this system are called hire and hire-vendor. The parties concerned are called buyer and seller.
  Ownership rights The ownership passes onto the purchase only on last payment of instalment. The ownership passes immediately after signing the agreement, although the price of goods will be paid in instalment.
  Return of goods The purchaser may return goods. The buyer cannot return goods unless and until sells defaults.
  Repossession If the higher makes default in instalment payment, the vendor can take back goods from hirer. Even if there  is any default in instalment payment, the seller cannot take back from buyer.
  Risk of loss Risk of loss of goods lie with vendor. Risk of loss of goods lie with buyer.
  Right of disposal Buyer cannot hire out, lease, mortgage, destroy, damage, or transfer of goods. Buyer can have right to dispose goods purchased under this system.
  Position relating to instalment The instalment paid is treated as hire charges for use of goods. Instalment paid is treated as part redemption of value of goods.
  Charges other than cash price Component other than cash price included in instalment is called ‘Hire Charges.’ Under this system, it is called ‘interest’.

Q.7. Calculate total hire-purchase price of the machine.

1. The cash price of a machine is 13,00,000. 2.1,20,000 is to be paid on signing the agreement.

3. The balance is to be paid in annual instalments of 60,000 with interest. 

4. Interest chargeable on outstanding balance is 10% p.a.

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