Repossession in Hire Purchase

Default and Repossession in Hire Purchase: 

Where the buyer makes default in the payment of any installment the vendor has a right to repossess the goods sold on hire purchase and forfeit whatever amount he has already received considering it as a hire charge. There are two possibilities in repossession of goods.

• When the vendor takes back the complete repossession of asset i.e., Complete Repossession, and
• When the vendor takes repossession of only a part of the total asset sold to the hire purchaser i.e., Partial Repossession.

Accounting Treatment:

(I) Complete Repossession: All entries till the date of default are passed in the usual manner. The additional treatment is as follows :

Books of Hire Purchaser:

1. For Closing Hire Vendor’s Account Hire Vendor’s A/cDr.  To Asset A/c
2. For Closing Asset Account
   • If the Book value of the Asset exceeds the amount due to Hire vendor: Profit & Loss A/c
   Dr. To Asset A/c
   • If the book amount to Hire-vendor exceeds the book value of the
   Asset Ale                                                             Dr.To Profit & Loss A/c

Books of Hire Vendor

1. On Repossession of goodsGoods Repossessed A/c              Dr.           To Hire Purchaser’s A/c
2. For amount spent on reconditioning of Goods RepossessedGoods Repossessed Aic                Dr. To Cash A/c/Bank A/c

• For Sale of Goods RepossessedCash A/c Bank A/c                               Dr.         To Goods Repossessed A/c
• For Loss on Sale Goods RepossessedProfit & Loss A/c                      Dr.           To Goods Repossessed A/c

Partial Repossession: All entries till the date of default are passed in_ the usual manner. The additional treatment is an follows :

Books of Hire Vendor .

1. On Repossession of Goods at an agreed valueGoods Repossessed A/c                  Dr.         To Hire Purchaser’s A/c