4. X purchased a computer on January 1, 2015 on hire-purchase price from Dilip Electronics. The cash price was 30,000. The terms of purchase were as under : (a) * 12,000 is payable immediately (b) Balance being payable by 12 quarterly instalments of 1,920, falling due from 1st April2015.?

Question

Answer

Explanation of Hire-Purchase Transaction

Cash Price and Instalments

The cash price of the computer is Rs. 30,000. However, X has opted for a hire-purchase arrangement with Dilip Electronics. As per the terms of the agreement, X has to pay Rs. 12,000 immediately, and the balance amount will be payable in 12 quarterly instalments of Rs. 1,920 each. The first instalment falls due on 1st April 2015.

Meaning of Hire-Purchase

Hire-purchase is a type of transaction where the buyer can acquire an asset by paying a down payment initially and then paying the balance amount over a period of time in instalments. The buyer gets possession of the asset immediately but becomes the owner only after paying all the instalments. The seller retains the ownership until the buyer pays the last instalment.

Accounting Entries

The following accounting entries will be passed in the books of X for the hire-purchase transaction:

On 1st January 2015:
Computer A/c Dr. 30,000
To Dilip Electronics A/c 30,000 (Being computer purchased on hire-purchase)

On 1st January 2015:
Dilip Electronics A/c Dr. 12,000
To Bank A/c 12,000 (Being down payment made)

On 1st April 2015:
Dilip Electronics A/c Dr. 1,920
To Bank A/c 1,920 (Being first instalment paid)

Conclusion

In conclusion, hire-purchase is a convenient option for buyers who cannot afford to pay the full price of an asset upfront. However, it is important to read the terms of the agreement carefully and understand the implications of the transaction fully before entering into it.

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