If a company has a choice between leasing and hire-purchase, it should assess the financial viability of both proposals using normal capital budgeting methods. We would prefer the technique of comparing the current values of the net after-tax outflows of the two options. The option with a lower present value of cash outflows means lower costs and should therefore be chosen. Hire-purchase is also known in Australia as commercial hire-purchase and business leasing (both abbreviated CHP). Hire Purchase was introduced in Australia in the early 1960s by Les Meteyard and its (currently unknown) business partner. We can say that the hire-purchase agreement is like leases where there is an option with the tenant to buy the asset at any time during the term of the lease, and since in the case of the hire-purchase property is transferred only when the last installment is paid, there is more protection for the seller, since the asset can be withdrawn if the payment of the payment amount is incorrect. Rental buyers can return the goods, which invalidates the original agreement as long as they have made the required minimum payments. However, buyers suffer a significant loss on returned or returned goods because they lose the amount they paid for the purchase up to that point. (iii) This person has the right to terminate the contract at any time before ownership is transferred in this way. § 3 of the act stipulates that any hire-purchase agreement must be in writing and signed by all parties. Let`s say equipment that costs Rs. 1,00,000 are sold in hire-purchase provided that interest in the amount of 15% per year is calculated at a flat rate and the payment is made in 5 equal years. Like leasing, hire-purchase agreements allow businesses with inefficient working capital to use assets.
It can also be more tax-efficient than standard loans, as payments are accounted for as expenses – although any savings are offset by tax benefits from depreciation. (v) Each payment will be treated as a rental fee until the last payment is paid. Hire-purchase functions are provided and discussed as follows – 6. . .