Note that the hire purchase interest needs to be apportioned over the period of the agreement. The commonly used methods are the Reducing Balance method,Straight Line method and Sum of Digits or Rule of 78 method
Below example illustrate the Reducing Balance method to apportion hire purchase interest:-
| Using the Reducing Balance method to apportion hire purchase interest: Under a hire purchase agreement,the company bought an air-conditioner with a cash purchase price of $2,500. A deposit of $500 is paid and 4 annual installments of $631. Interest rate is 10%
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- How To Apportion Hire Purchase Interest-Straight Line Method (Part 2 of 3)
- How To Apportion Hire Purchase Interest-Using Sum Of Digit Method Or Rule Of 78 (Part 3 of 3)
- Hire Purchase,Credit Sales And Rental Agreement
- Accounting For Hire Purchase In The Purchaser’s Book
- Medium Term Financing- Hire Purchase and Leasing Facility (Part 1)
- Difference Between Hire Purchase And Installment System
- Illustrated Example Of Sale And Leaseback-Tamaddan Berhad
FCCA,CA(MIA)with more than 26 years of post-qualifying working experiences. Previous working stints with one of the big accounting four,Regional GFC & Group Treasurer in a group of Malaysian and Group CFO in Singapore public listed concern.Also author to another very popular free educational accounting cum finance blog:http://basiccollegeaccounting.com under the branding of College Accounting Coach.
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