Hire Purchase and Instalment Purchase System
MCQs
Multiple Choice Questions and Answers
For BCOM, MCOM, CMA Intermediate and Junior
Accountant Exam
In this page, you will get Hire
Purchase and Instalment Purchase System MCQs Multiple Choice Questions and Answers which
are useful for BCOM, MCOM, UKPSC Assistant Accountant Exam and Various
Professional Exams Like CA/CMA and CS.
We update this page frequently to add new
questions.
Introduction to Hire Purchase System
Hire Purchase System defers to the system wherein;
the seller of goods transfers the goods to the buyer without transferring the
ownership of goods. The payment for the goods will be made by the buyer in
installments. If the buyer pays all the installments, the ownership of the
goods will be transferred, on payment of the last installment. However, if the
buyer does not pay for any installment, the goods will be repossessed by the
seller and the money paid on earlier installments will be treated as hire
charges for using the goods.
Introduction to Instalment Purchase System
Installment payment system (also called the deferred installments) is a system where the buyer is given the ownership as well as the possession of the gods at the time of signing the contract. The buyer has the facility to pay the price in installments.
Hire Purchase and Instalment Purchase System
MCQs
Multiple Choice Questions and Answers
Choose the correct alternative
1. Hire Purchase system is governed by:
a) Hire Purchase Act, 1972
b) Sale of Goods Act
c) Installment Act.
d) Properties Registration Act.
Ans: a) Hire Purchase Act, 1972
2. Installment system is governed by:
a) Hire Purchase Act.
b) Sale of Goods Act
c) Installment Act.
d) Properties Registration Act.
Ans: b) Sale of Goods Act
3. Under hire purchase system, the agreement can be _________
anytime.
a) Renewed.
b) Registered.
c) Terminated.
d) Endorsed.
Ans: c) Terminated.
4. When an asset is acquired on hire purchase system, the asset account
is debited with _______ of the assets in the books of the hire purchaser.
a) Hire purchase price
b) Cash price
c) Installment price
d) None of these
Ans: b) Cash price
5. On the balance sheet of a company, the value of the asset bought
through hire purchase will appear as:
a) Cost less depreciation to date less Balance in hire vendor’s
account
b) Cost less amounts owing on hire purchase
c) Cost less depreciation to date less amount owing on hire
purchase
d) Cost less depreciation to date
Ans: a) Cost less depreciation to date less Balance in hire vendor’s
account
6. The depreciation on an asset purchased through hire purchase should
be:
a) Should be straight line only
b) Based on the cost price of the asset only
c) Based on the total cost including interest
d) No depreciation should be provided until the final payment is
made
Ans: b) Based on the cost price of the asset only
7. Ownership of goods under hire purchase agreement is transferred at
the time of:
a) Payment of down payment
b) Payment of first installment
c) Full and final Payment of last installment
Ans: c) Full and final Payment of last installment
8. The act of buying an asset without having to make full payment in the
immediate future is known as:
a) Hire purchase
b) Finance lease
c) Operating lease
d) Sale and leaseback
Ans: a) Hire purchase
9. The amount of interest is credited by the buyer to:
a) Hire purchase Account
b) Hire Vendor Account
c) Interest Account
Ans: b) Hire Vendor Account
10. Hirer charges depreciation is calculated and shown in the books of
hirer/Vendee:
a) Hire purchase price
b) Cash price.
c) None of these
Ans: b) Cash price.
11. What is transferred to Hirer under hire purchase system:
a) Ownership of assets
b) Possession of asset
c) Ownership and possession of asset
d) None of these
Ans: b) Possession of asset
12. Under hire purchase system, _________ has the right of sell.
a) Vendee/Hirer
b) Hire Vendor.
c) Debtor
Ans: b) Hire Vendor.
13. If there is any default in payment, the seller has the right to
repossess the goods and forfeit the amount already received.
a) True
b) False
Ans: a) True
14. Under hire purchase system, the retail price of the articles is
called:
a) MRP.
b) Wholesale Price
c) Retail Price.
d) Cash Price.
Ans: c) Retail Price.
15. The Initial amount paid hire purchase system is called:
a) Cash Price.
b) Retail Price.
c) Interest
d) Down Payment
Ans: d) Down Payment
16. Under hire purchase system, interest is calculated on:
a) Cash Price.
b) Hire Purchase Price
c) Outstanding Balance.
Ans: c) Outstanding Balance.
17. If the hire purchaser fails to make payment of any installment, it
is called default and the vendor has the right of:
a) Default.
b) Repossession.
c) Sale.
Ans: b) Repossession.
18. If the hire vendor may take away all the goods on which there is
default of installment it is called:
a) Repossession.
b) Partial Repossession.
c) Complete Repossession.
Ans: c) Complete Repossession.
19. The hire vendor takes away only a portion of the goods on which
there is default of Installments it is called:
a) Repossession
b) Partial Repossession
c) Complete Repossession.
Ans: b) Partial Repossession
20. In the books of hirer, for payment of installment hire vendor
account will be:
a) Debited.
b) Credited.
Ans: a) Debited.
21. In the books of hirer, for interest due at the end of the year hire
vendor account will be:
a) Debited.
b) Credited.
Ans: b) Credited.
22. In the books of Hirer, the interest and depreciation account will be
transferred to:
a) Trading account
b) P & L account
c) P & L appropriation account
d) Balance sheet.
Ans: b) P & L account
23. In the books of hirer, when the asset is repossessed hire vendor
account will be:
a) Debited.
b) Credited.
Ans: a) Debited.
24. In the books of hirer, when the asset is repossessed, asset account
will be:
a) Debited.
b) Credited.
Ans: b) Credited.
25. In the books of hire vendor, when down payment is received, the
hirer accounts will be:
a) Debited
b) Credited
Ans: b) Credited
26. Nature of hire purchase agreement is:
a) Agreement of sale
b) Option to transfer.
c) Option to buy.
d) Option to sell.
Ans: c) Option to buy.
27. In case of Hire-Purchase the total sum payable by the hire-purchaser
as per terms in order to complete the transactions is:
a) Net Cash Price
b) Net Hire-Purchase Charges
c) Hire-Purchase Price
d) Cash Price Installment
Ans: c) Hire-Purchase Price
28. The price at which the goods can be purchased by the hirer for ready
cash is known as:
a) HP price
b) Installment price
c) Cash price
d) Down payment
Ans: c) Cash price
29. The difference between hire purchase price and the cash price is
called:
a) Hire charges /Total Interest
b) Cost of the asset
c) Installment price
d) Cash price
Ans: a) Hire charges /Total Interest
30. The value at which goods are reposed is transferred to _______ in
the books of the vendor.
a) Asset account
b) Goods account
c) Goods repossessed account
d) None of these
Ans: c) Goods repossessed account
31. Cash Price equals to:
a) Hire purchase price – total interest
b) Down payment in cash
c) Down payment + Interest
d) None of the above
Ans: a) Hire purchase price – total interest
Hire Purchase and Instalment
Purchase System MCQs
Multiple Choice Questions and
Answers
State whether the following
statements are true or false:
1. There is no difference between hire purchase and instalment purchase
system. False
2. Hire Purchase price = Cash Price + Total
Interest. True
3. Payment made towards cash price to be treated as capital expenditure
for the purchase of an asset. True
4. Interest paid on hire purchase is charged to profit and loss account
because it is revenue
expenditure. True
5. In hire purchase system, ownership of goods passes from the seller to
the buyer only when full and final payment is made. True
6. In instalment purchase system, ownership of goods passes from the
seller to the buyer
immediately. True
7. Under hire purchase system, the buyer can sell, destroy, transfer,
damage or pledge the goods. False, these are possible
only in case of instalment purchase system,
8. Instalment purchase system and credit sale are
different. True
9. Depreciation on fixed assets purchased on hire purchase system is
charged in the books of the
Seller. False,
Only purchaser
10. In case of default only, the hire vendor has the right to repossess
the
goods. True
11. In Hire Purchase transaction the right to sell or transfer of the
goods remains with
Seller. True
12. Difference between Hire Purchase Price and Cash price of the asset
is known as Total
Interest. True
13. Assets are recorded at cash price in the books of
vendee. True
14. Hire sales is transferred to trading account at the end of the
accounting
year. True
15. In case of transfer of asset, the cost of asset in the books of
transferee includes the amount paid to the hire purchaser and cash price of the
remaining
installment. True
16. There are two parties in a contract of hire purchase – Vendor
(Seller) and Vendee
(Hirer/Purchaser). True
17. The Hirer/Vendee has a right to the terminate the agreement at any
time before the property passes to
him. True
18. In Cash price method of account, total interest is debited at the
time of passing entry for purchase of
asset. False
19. In interest suspense method, total interest is debited at the time
of passing entry for purchase of
asset. True
20. Total interest is apportioned from the different instalments on the
basis of amount due of different instalments. True
21. Quality of asset purchased does not give a difference between a hire
purchase and a normal
purchase. True
22. Each Instalment is treated as hire charge till the last installment
is paid. True
23. Interest included in Hire purchase price is also known as financing charges. True
Important terms and provisions
1. Hire purchaser: A hire purchaser is a person who possesses
the goods under hire purchase agreement for use within an option to either
purchase it or return after use.
2. Hire vendor: a hire vendor is a person who sells the goods
under hire purchase agreement.
3. Cash price: it is the price of goods which is sold under
‘contract of sale’
4. Hire purchase price: it is the price at which the goods are
sold under ‘hire purchase system’ it includes cash price of the goods and
interest.
5. Installment money: it is the part of the hire purchase
price paid by hire purchaser, in periodic intervals.
6. Deposit: it refers any sum payable by the hirer under the
hire purchase agreement by way of initial payment or credited or to be credited
to him under the agreement on account of any deposit.
7. Net cash price: it refers to the difference between cash price
of the goods and deposit (cash price-down payment=net cash price).
8. Net hire purchase price: it is the net amount after
deducting the delivery charges, registration charges, insurance charges from
hire purchase price.
9. Hire charges: it is an amount refers to the difference
between hire purchase price and cash price (H P- C P= H C) it also referred to
as interest.
10. Statutory hire charges: it is a hire charges according to
the hire purchase act of, 1972.
11. Hire purchase agreement: it is an agreement between hire
purchaser and hire vendor according to section 2(c) of the hire purchase act,
1972 for purchasing of goods according to agreement.
12. Rebate: it is an amount which is claimed by the hire
purchaser from the hire vendor in case if he decides to remit the balance of
the purchase price (future installments) in lumpsum without continuing the hire
purchasing agreement.
The rebate is calculated as follows
Rebate = 2/3 X hire charges X (no. of installments due/total no. of
installments)
13. Termination of hire purchase agreement: The hirer can
terminate the agreement at any time by giving the 14 days’ notice to the owner.
However, whatever the amount is already paid by the hirer is considered as a
hire charges.
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