Let's discuss Hire Purchase System : Part 1 - Class Notes, Financial Accounting, Commerce Share your opinion, doubts and problems about this document.

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On jan 1,2010 A purchased a moter cycle on the hire purchase system.the cash price of the moter cycle was 28000.A paid 8000 immediately and agreed to pay the balance in three equal instalments of 8000 each on 31st December every year.the moter cycle company charges interest at 10% on the diminishing balance method.Give the journal entries and open necessary accounts in the books of A.

Answer

A man bought a machine from hire vendor on hire on hire purchase method method he paid rs.600 Cash down rs.640 at the end of the first year rs.890 at the end of the second year and rs.880 at the end of the third year The interest on the cash price is 10% per annum the interest on the cash price is 10% per annum find out the cash price

Answer

The Hire Purchase System is a method of purchasing goods, commonly used in the commerce and financial accounting fields. This system allows individuals or businesses to acquire assets by paying in installments over a specific period of time. It is important to understand the key concepts and principles related to the Hire Purchase System to effectively apply it in real-life scenarios. In this discussion, we will explore the class notes on this topic, focusing on its financial accounting implications and its relevance in the field of commerce.

The class notes on the Hire Purchase System provide a comprehensive understanding of the topic. They cover various aspects, including the definition, features, parties involved, accounting treatment, and advantages and disadvantages of the system. These notes serve as a valuable resource for students and professionals studying or working in financial accounting and commerce.

The Hire Purchase System has significant implications in financial accounting, as it involves both the purchase and financing of assets. Some key points to consider in this regard are:

1. Recognition of Assets and Liabilities: Under the Hire Purchase System, the asset being acquired is recognized as an asset on the buyer's balance sheet, while the outstanding installment payments are recorded as a liability.

2. Depreciation: The asset acquired through the Hire Purchase System is depreciated over its useful life, following the relevant accounting standards. This depreciation expense is recorded in the buyer's income statement.

3. Interest Expense: The interest charged on the installment payments represents the finance cost associated with the Hire Purchase System. This expense is recognized over the period of the hire purchase agreement and is recorded in the buyer's income statement.

4. Accounting Treatment: The accounting treatment for hire purchase transactions involves journal entries to record the asset acquisition, liability recognition, interest expense, and periodic installment payments. These entries should comply with the applicable accounting standards and principles.

The Hire Purchase System plays a crucial role in commerce, particularly in facilitating the purchase of high-value assets. Some key points highlighting its relevance in commerce include:

1. Easy Asset Acquisition: The Hire Purchase System allows individuals and businesses to acquire assets without making a large upfront payment. This enables them to use the asset for their commercial activities while paying for it in installments.

2. Cash Flow Management: By opting for the Hire Purchase System, businesses can effectively manage their cash flow. They can acquire essential assets while preserving their liquid funds for other operational expenses or investment opportunities.

3. Increased Sales: Sellers offering goods through the Hire Purchase System can attract more customers by providing them with the option to purchase assets on credit. This can lead to increased sales and revenue for the business.

4. Expansion Opportunities: The availability of the Hire Purchase System enables businesses to expand their operations by acquiring assets that they may not have been able to afford otherwise. This expansion can contribute to the growth and success of the business.

In conclusion, the Hire Purchase System is a significant concept in financial accounting and commerce. Understanding its class notes, financial accounting implications, and relevance in commerce is essential for students and professionals in these fields. By comprehending the key concepts and principles associated with the Hire Purchase System, one can effectively apply this system in practical scenarios and make informed business decisions.

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