NIK AZIDA BINTI ABD GHANI nikazida5@yahoo.

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Allows buyer to hire the goods for a monthly rent.

Monthly installment

Original full price

Interests

Option to buy or return the goods

buyer who has the use of the goods is not the legal owner during the term of the hirepurchase contract.

If the buyer defaults in paying the installments, the owner may repossess the goods.

a clear description of the goods the cash price for the goods the HP price, i.e., the total sum paid the deposit the monthly installments statement of the parties' rights The right of the hirer to terminate the contract.

rights To buy the goods at any time by giving notice and paying the balance less a rebate. To return the goods to the owner subject to penalty. To assign both the benefit and the burden of the contract to a third person. Where the owner wrongfully repossesses the goods, either to recover the goods plus damages or value of the goods lost.

obligations to pay the hire installments to take reasonable care of the goods (if the hirer damages the goods by using them in a non-standard way, he or she must continue to pay the installments and, if appropriate, compensate the owner for any loss in asset value) to inform the owner where the goods will be kept.

The right to terminate the agreement

Where the hirer defaults in paying the installments. Breaches any of the other terms in the agreement.

Entitled the owner to:

forfeit the deposit. retain the installments already paid and recover the balance due. repossess the goods. to claim damages for any loss suffered.

Hire purchase Title of the goods: The legal title does not pass to the hirer until he has paid his final installment and exercise his option to purchase. In case of default payment: The seller has the right to repossess/reclaim the goods if the hirer fail to pay.

Credit purchase Title of the goods: Transfer to the buyer immediately on delivery and the purchase price is payable by installment or at some time in the future. In case of default payment: The seller has no right to repossess the goods but can sue for unpaid balance/ installment.

Bai Bithaman Ajil

Perjanjian Sewa Beli

Peruntukan Akta merujuk kepada sewa Tertakluk kepada Akta Sewa Beli 1967 beli di bawah perjanjian Bai Bithaman Ajil. (Hire-purchase Act 1967 and Regulations) Pemilikan Aset Pemilikan Aset Pemilikan Aset dinyatakan dalam klausa 4 di Aset hanya berpindah milik kepada pembeli bawah perjanjian Bai Bithaman Ajil. setelah ansuran terakhir dibayar. Pembeli diberi pilihan sama ada membeli atau tidak. Terma Faedah Sekiranya pembeli tidak mampu membayar Pembeli dikenakan caj tertentu (faedah atau menangguh bayaran ansuran, kos tambahan) ke atas bayaran yang lewat. tangguh disebut upah. Harga Jualan Pelanggan akan menerima harga sewa beli Harga sewa beli termasuk harga kos dan sebagai harga jualan di antara syarikat faedah yang dicajkan kepada pelanggan. kewangan dengan pelanggan. Syarikat kewangan merupakan pembeli daripada penjual asal. Akad (intention) Akad atas belian aset (harga jualan) di antara Tiada akad. pelanggan dengan syarikat kewangan.

Deposit Rebate Interest

Payback Period

Elements of HP

Cash Price

HP Price

Installment

The amount paid at a regular interval throughout the hirepurchase agreement. The agreed period to fully pay the seller back. The total sum payable by the hirer under a hire-purchase agreement in order to complete the purchase. The discounted amount of loan if it is settled before the payback period ends. A certain amount paid initially to the seller. the price at which at the time of signing the agreement the hirer might have purchased the goods for cash Service charge imposed on the amount payable for the hirepurchase.

Cash price Deposit Payback period Interest rate

RM5,000 RM 500 12 months 10%

Calculate the amount of hire-purchase interest and hire-purchase price.

Hire-purchase interest Interest = (5000 500) x 1 x 10% = RM450 Remember: Interest is charged to the borrowed amount, therefore you need to minus deposit before multiply with the number of period and interest rate charged per period.

Hire-purchase price Hire-purchase price = 5000 + 450 = RM5,450 Remember: HP price is the total sum to be paid, therefore you need to include the deposit and all installments.

Cash price RM10,000 Deposit RM 2,000 Installment 5 times RM 2,400 each

Calculate the amount of hire-purchase interest and hire-purchase price.

Hire-purchase price Hire-purchase price

= (2,400 x 5) + 2,000 = 12,000 + 2,000 = 14,000

Hire-purchase interest Hire-purchase interest = Hire-purchase price Cash price = 14,000 10,000 = 4,000

Encik Abu Hassan bought a machine at a cash price of RM6,000. He paid a deposit of RM846 and was supposed to pay back in three annual installments at an interest rate of 8% per annum. Calculate the amount of hire-purchase price and hire-purchase interest.

Straight line method The same amount of interest are payable annually.

Decreasing balance method the interest amount decrease each time with the largest amount in the first year and decreasing.

Sum of the year digit method interest calculated based on the proportion of the year (designated by the position of the year) in relation to the total digit of the years.

Principal payment
Installment

Interest payment

Principal payment = Interest payment =

cash price deposit installment times total interest installment times

Cash price RM4,000 Deposit RM1,000 Installment 3 times RM1,206 each installment
Calculate:

hire-purchase price the amount of principal payment in each installment total interest the amount of interest payment in each installment.

Hire-purchase price = total installment + deposit = (RM1206 x 3) + RM1000 = RM4618 Principal payment in each installment = RM4000 RM1000 x RM1206 RM3618 = RM1000

Total interest = Hire-purchase price cash price = RM4618 RM4000 = RM618

d) Interest amount in each installment = RM618 x RM1206 RM3618 = RM206

Question 1 Cash price RM25,000 Installment 24 times RM1,000 each Deposit RM5,000 Calculate: hire-purchase price the amount of principal payment in each installment total interest the amount of interest payment in each installment.

Question 2 Cash price RM10,000 Hire-purchase interest 10% per annum Deposit RM 1,000 Annual installment of 5 times Calculate: hire-purchase price the amount of annual installment the amount of principal payment in each installment total interest and the amount of interest payment in each installment.

To calculate total interest and the amount in each installment, interest computation table must be prepared.

Example 4 Puan Halimah purchased a used vehicle at a cash price of RM60,000. She paid deposit for the amount of 21% of the cash price of the vehicle. Hirepurchase interest was calculated at 8% per annum. She also had to pay 4 annual installments of RM12,000 each and a final installment of RM11,246.

Cash price (-) deposit (+) Interest 1 (-) Installment 1 (+) Interest 2 (-) Installment 2 (+) Interest 3 (-) Installment 3 (+) Interest 4 (-)Installment 4 (+) Interest 5 (-) Installment 5

60,000 12,600 47,400 3,792 51,192 12,000 39,192 3,135 42,327 12,000 30,327 2,426 32,753 12,000 20,753 1,660 22,413 12,000 10,413 833 11,246 11,246 0

Table of interest computation

Interest is usually calculated at the beginning of the period

Installment follows after interest

Question 1 Cash price RM2,500 Deposit RM 500 Installments 4 times RM 631 each Interest rate 10% per annum Calculate: the amount of interest payable at each installment. the total amount of hire-purchase interest .

Question 2 Cash price Deposit Installment 3 times Interest rate RM6,000 RM 846 RM2,000 each 8% per annum

Calculate: the amount of interest payable at each installment. the total amount of hire-purchase interest.

Example: Cash price Deposit Interest amount

RM3,000 RM1,000 RM 400

Installment from the month of January till the month of June for the amount of RM200 monthly.

Label the installment using digit starting from the highest digit to the first digit (numbered 1) and the lowest digit to the final installment. Jan 1 Digit 6 Feb 2 5 Mar 3 4 Apr 4 3 May 5 2 Jun 6 1

Sum up the digit Jan 1 6 Feb 2 +5 Mar 3 +4 Apr 4 +3 May 5 +2 Jun 6 +1 = 21

Identify the proportion of interest for each installment Jan Digit 6 6/21 Feb 5 5/21 Mar 4 4/21 Apr 3 3/21 May 2 2/21 Jun 1 1/21

Month Jan Feb Mar Apr May Jun

Calculation of interest 6/21 x RM400 5/21 x RM400 4/21 x RM400 3/21 x RM400 2/21 x RM400 1/21 x RM400

Amount of interest 114.29 95.24 76.19 ? ? ?

regular hirepurchase interest method

interest are calculated and recorded into the books as it becomes due, eg. monthly or annually.

suspense hire-purchase interest method

the total amount of interest are recorded at the beginning of the hirepurchase agreement in the Hirepurchase Interest Suspense Account and are credited to Profit and Loss Account as it becomes due.

When HP agreement is prepared

Asset Hire-purchase creditor XX

Hire purchase creditor (seller) Asset XX

Buyer s books

Accounts to be prepared

To record HP interest
Dr. Hire-purchase interest expense Cr. Hire-purchase creditor account

Hire-purchase interest expense Hire-purchase creditor account XX

Hire-purchase creditor Hire purchase interest expense XX

To record payment of deposit or installment

Hire purchase creditor Bank XX

Bank account Hire-purchase creditor account XX

To record accumulated depreciation

Profit and Loss Accumulated depreciation XX

Accumulated Depreciation Profit and loss account XX

To transfer the HP amount to profit & loss account

Profit and Loss HP interest expense XX

HP interest expense Profit and loss account XX

Danial bought a motor vehicle on hire-purchase from Syarikat Motor D Fateha on 1 January 2008. The hire-purchase agreement stated the following: Cost RM 58,263 Cash price 72,263 Deposit 22,300 Hire-purchase interest was charged at 8% per annum using the declining balance method. Instalments of RM15,000 were to be paid at the end of each year for a period of three years and the final instalment of RM15,382.

Prepare the following accounts: Motor vehicle account Hire-purchase creditor account Hire-purchase interest account Extract of profit and loss account Extract of balance sheet

Year 1

Cash Price Deposit Interest 1 Installment 1

Year 2

Interest 2 Installment 2

Year 3

Interest 3 Installment 3

72,263 22,300 49,963 3,997 53,960 15,000 38,960 3,117 42,077 15,000 27,077 2,166 29,243 15,000 14,243
1,139 15,382 15,382 0

Year 4

Interest 4 Installment 4

On 1 January 2008, Encik Faidzul bought a machine from Syarikat Umar Al-Atif on hirepurchase. The hire-purchase price was RM10,030. Deposit RM2,000 was paid at the time of purchase. Three installment for the amount of RM2,000, RM3,000 and RM3,030 are to be paid. Each installment was paid on 31 December. Interest rate charged at 15% per annum based on declining balance method. Depreciation was calculated at 20% per annum on straight line basis.

Prepare the following accounts: Machine Hire-purchase creditor account Hire-purchase interest account Accumulated depreciation account Profit and loss account Balance sheet

Most of the time, the questions do not state which method to use.

Pay attention to the type of accounts to be prepared. The account Hire-purchase Interest Suspense would suggest that the suspense method is used. If it is not mentioned, then the method to be used is the regular hire-purchase interest suspense.

Prepare the following accounts: Motor vehicle account Hire-purchase creditor account Hire-purchase interest suspense account Extract of profit and loss account Extract of balance sheet

Note that the interest suspense account is to be shown.

Question 1 On 1 January 2006, Syarikat Motor Berhad sold an asset to Encik Ahmad. A deposit of RM67,350 was paid at the time of purchase. The hire-purchase agreement was for 3 years with installment payment of RM50,000 on 31 December 2006 to 2008. Interest was charged at 5% per annum based on the balance on total debt outstanding. A hire-purchase interest account was opened to allocate the interest throughout the period under agreeement. You are required to: Calculate the cash price and hire-purchase price of the asset. Calculate the interest payable on each year. Use the regular hire-purchase interest method to record the transactions into the books of Encik Ahmad.

Question 2 Mega Sdn. Bhd sold a machine under a hire-purchase agreement to Encik Farouq on 1 January 2006. The agreement stated the following details: Deposit RM10,000 Installment 4 times every 6 months of RM4,000 each First installment due on 30 June 2006. Interest rate charged at 10% per annum based on balance outstanding and depreciation charged at 5% based on straight-line method. You are required to: calculate the cash price of the machine prepare the accounts in the book of the buyer using the regular hirepurchase interest method of recording and prepare the accounts in the books of the buyer using the suspense hirepurchase interest method of recording.

Question 3 Based on Question 1 above, use the hirepurchase interest suspense method to record the transactions into the books of Encik Ahmad (the buyer).

Question 4 Based on Question 2 above, use the regular hirepurchase interest method to record the transactions into the books of Encik Farouq (the buyer).