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L-14.HP.IBFS.ca

L-14.HP.IBFS.ca - CA(IBFS L-14 Hire-Purchase(HP Definition...

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CA(IBFS) L-14: Hire-Purchase (HP) 1. Definition and Characteristics of HP 2. Form and Contents of HP Agreement 3. Implied Warranties and Conditions of HPA 4. Rights and Obligations of Hirer 5. Rights and Obligations of Owner 6. Mathematics (Calculations) of HP 7. Legal Aspects of HP 8. Tax Implications of HP 9. The HP Act, 1972 10. Evaluation of HP: (i) From Hirer’s Angle (ii) From HP Finance Company’s Angle 1. Definition and characteristics of HP: HP is defined as a peculiar kind of transaction in which the goods are let on hire by the Seller (or the HP Finance Company or the Hire-Vendor)) to the Hirer (or Hire-Purchaser) with an option to the hirer/ purchaser to purchase them with the following stipulations:- Payments to be made in installments over a specified period. Possession is delivered to the hirer at the time of entering into the contract. The property in goods passes to the hirer on payment of the last installment. 1
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Each installment is treated as hire charges so that if default is made in payment of any installment, the seller becomes entitled to take away the goods. The hirer/purchaser is free to return the goods without being required to pay any further installments falling due after the return. Thus Hire Purchase Agreement (HPA) has 2 aspects: (i) Bailment of goods subject to the HPA. (ii) An element of sale which fructifies when the option to purchase is exercised by purchaser. Two Distinct Features of HP transactions are: Option to purchase goods at any time by the purchaser at any time during the period of HPA The right available to the hirer to terminate the agreement at any time before the payment of the last installment. Different Types of HP Plans : I. Down payment Plan : Under this plan, the Hirer has to make a down payment of 20%-25% of the cost and pay the balance in Equal Monthly Installments (EMI). The HP installments have 2 components: 2
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(i) Interest / Finance Charge (Interest component has a flat rate; and effective rate is applied to the declining balance of the original amount to determine the interest component of each installment). (ii) Recovery of Principal (During the hire- period, the hirer can opt for early repayment / purchase of the equipment/asset by paying the remaining installments minus an interest rebate. The hirer has the right to terminate the contract after giving due notice). II. Deposit-linked Plan : This is similar to the Down Payment Plan, but instead of a down payment, the hirer has to invest a specified amount in a Fixed Deposit of the finance company which is returned together with interest after the payment of the last EMI by the hirer.
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