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Saturday, September 12, 2020

MCQ - Hire Purchase and Instalment Purchase System | Multiple Choice Questions and Answers | PAPER 5 FINANCIAL ACCOUNTING | CMA MCQ


Multiple Choice Questions and Answer for CMA/CA/CS examination
INSTITUTE OF COST ACCOUNTANTS OF INDIA
CMA INTERMEDIATE: PAPER 5 – FINANCIAL ACCOUNTING

Hire Purchase and Instalment Purchase system Multiple Choice Questions and Answers (MCQs)

State whether the following statements are true or false:
1. There is no difference between hire purchase and instalment purchase system.          False
2. Hire Purchase price = Cash Price + Total Interest.                          True
3. Payment made towards cash price to be treated as capital expenditure for the purchase of an asset. True
4. Interest paid on hire purchase is charged to profit and loss account because it is revenue expenditure.                             True
5. In hire purchase system, ownership of goods passes from the seller to the buyer only when full and final payment is made.   True
6. In instalment purchase system, ownership of goods passes from the seller to the buyer immediately.               True

7. Under hire purchase system, the buyer can sell, destroy, transfer, damage or pledge the goods.                          False, these are possible only in case of instalment purchase system,
8. Instalment purchase system and credit sale are different.                       True
9. Depreciation on fixed assets purchased on hire purchase system is charged in the books of the Seller.                               False, Only purchaser
10. In case of default only, the hire vendor has the right to repossess the goods.                               True
11. In Hire Purchase transaction the right to sell or transfer of the goods remains with Seller.                       True
12. Difference between Hire Purchase Price and Cash price of the asset is known as Total Interest.          True
13. Assets are recorded at cash price in the books of vendee.                     True
14. Hire sales is transferred to trading account at the end of the accounting year.              True
15. In case of transfer of asset, the cost of asset in the books of transferee includes the amount paid to the hire purchaser and cash price of the remaining installment.                        True
16. There are two parties in a contract of hire purchase – Vendor (Seller) and Vendee (Hirer/Purchaser).              True
17. The Hirer/Vendee has a right to the terminate the agreement at any time before the property passes to him.              True
18. In Cash price method of account, total interest is debited at the time of passing entry for purchase of asset.                False
19. In interest suspense method, total interest is debited at the time of passing entry for purchase of asset.       True
20. Total interest is apportioned from the different instalments on the basis of amount due of different instalments.  True
21. Quality of asset purchased does not give a difference between a hire purchase and a normal purchase.         True
22. Each Instalment is treated as hire charge till the last installment is paid.           True
23. Interest included in Hire purchase price is also known as financing charges.   True
Choose the Correct Answer:
1. Hire Purchase system is governed by:
a)      Hire Purchase Act, 1972
b)      Sale of Goods Act
c)       Installment Act.
d)      Properties Registration Act.
2. Installment system is governed by:
a)      Hire Purchase Act.
b)      Sale of Goods Act
c)       Installment Act.
d)      Properties Registration Act.
3. Under hire purchase system, the agreement can be _________ anytime.
a)      Renewed.
b)      Registered.
c)       Terminated.
d)      Endorsed.
4. When an asset is acquired on hire purchase system, the asset account is debited with _______ of the assets in the books of the hire purchaser.
a)      Hire purchase price
b)      Cash price
c)       Instalment price
d)      None of these
5. On the balance sheet of a company, the value of the asset bought through hire purchase will appear as:
a)      Cost less depreciation to date less Balance in hire vendor’s account
b)      Cost less amounts owing on hire purchase
c)       Cost less depreciation to date less amount owing on hire purchase
d)      Cost less depreciation to date
6. The depreciation on an asset purchased through hire purchase should be:
a)      Should be straight line only
b)      Based on the cost price of the asset only
c)       Based on the total cost including interest
d)      No depreciation should be provide until the final payment is made
7. Ownership of goods under hire purchase agreement is transferred at the time of :
a)      Payment of down payment
b)      Payment of first instalment
c)       Full and final Payment of last instalment
8. The act of buying an asset without having to make full payment in the immediate future is known as:
a)      Hire purchase
b)      Finance lease
c)       Operating lease
d)      Sale and leaseback
9. The amount of interest is credited by the buyer to:
a)      Hire purchase Account
b)      Hire Vendor Account
c)       Interest Account
10. Hirer charges depreciation is calculated and shown in the books of hirer/Vendee:
a)      Hire purchase price
b)      Cash price.
c)       None of these
11. What is transferred to Hirer under hire purchase system:
a)      Ownership of assets
b)      Possession of asset
c)       Ownership and possession of asset
d)      None of these
12. Under hire purchase system, _________has the right of sell.
a)      Vendee/Hirer
b)      Hire Vendor.
c)       Debtor
13. If there is any default in payment, the seller has the right to repossess the goods and forfeit the amount already received.
a)      True
b)      False
14. Under hire purchase system, the retail price of the articles is called:
a)      MRP.
b)      Wholesale Price
c)       Retail Price.
d)      Cash Price.
15. The Initial amount paid hire purchase system is called:
a)      Cash Price.
b)      Retail Price.
c)       Interest
d)      Down Payment
16. Under hire purchase system, interest is calculated on:
a)      Cash Price.
b)      Hire Purchase Price
c)       Outstanding Balance.
17. If the hire purchaser fails to make payment of any installment, it is called default and the vendor has the right of:
a)      Default.
b)      Repossession.
c)       Sale.
18. If the hire vendor may take away all the goods on which there is default of installment it is called:
a)      Repossession .
b)      Partial Repossession.
c)       Complete Repossession.
19. The hire vendor takes away only a portion of the goods on which there is default of Installments it is called:
a)      Repossession
b)      Partial Repossession
c)       Complete Repossession.
20. In the books of hirer, for payment of installment hire vendor account will be :
a)      Debited.
b)      Credited.
21. In the books of hirer, for interest due at the end of the year hire vendor account will be :
a)      Debited.
b)      Credited.
22. In the books of Hirer, the interest and depreciation account will be transferred to:
a)      Trading account
b)      P & L account
c)       P & L appropriation account
d)      Balance sheet.
23. In the books of hirer, when the asset is repossessed hire vendor account will be:
a)      Debited.
b)      Credited.
24. In the books of hirer, when the asset is repossessed, asset account will be:
a)      Debited.
b)      Credited.
25. In the books of hire vendor, when down payment is received, the hirer accounts will be:
a)      Debited
b)      Credited
26. Nature of hire purchase agreement is :
a)      Agreement of sale
b)      Option to transfer.
c)       Option to buy.
d)      Option to sell.
27. In case of Hire-Purchase the total sum payable by the hire-purchaser as per terms in order to complete the transactions is
a)      Net Cash Price
b)      Net Hire-Purchase Charges
c)       Hire-Purchase Price
d)      Cash Price Instalment
28. The price at which the goods can be purchased by the hirer for ready cash is known as:
a)      HP price
b)      Installment price
c)       Cash price
d)      Down payment
29. The difference between hire purchase price and the cash price is called:
a)      Hire charges /Total Interest
b)      Cost of the asset
c)       Installment price
d)      Cash price
30. The value at which goods are reposed is transferred to _______  in the books of the vendor.
a)      Asset account
b)      Goods account
c)       Goods repossessed account
d)      None of these
31. Cash Price equals to
a)      Hire purchase price – total interest
b)      Down payment in cash
c)       Down payment + Interest
d)      None of the above
Important terms and provisions
1. Hire purchaser: A hire purchaser is a person who possesses the goods under hire purchase agreement for use within an option to either purchase it or return after use.
2. Hire vendor: a hire vendor is a person who sells the goods under hire purchase agreement.
3. Cash price: it is the price of goods which is sold under ‘contract of sale’
4. Hire purchase price: it is the price at which the goods are sold under ‘hire purchase system’ it includes cash price of the goods and interest.
5. Installment money: it is the part of the hire purchase price paid by hire purchaser, in periodic intervals.
6. Deposit: it refers any sum payable by the hirer under the hire purchase agreement by way of initial payment or credited or to be credited to him under the agreement on account of any deposit.
7. Net cash price: it refers to the difference between cash price of the goods and deposit (cash price-down payment=net cash price).
8. Net hire purchase price: it is the net amount after deducting the delivery charges, registration charges, insurance charges from hire purchase price.
9. Hire charges: it is an amount refers to the difference between hire purchase price and cash price (H P- C P= H C) it also referred to as interest.
10. Statutory hire charges: it is a hire charges according to the hire purchase act of, 1972.
11. Hire purchase agreement: it is an agreement between hire purchaser and hire vendor according to section 2(c) of the hire purchase act, 1972 for purchasing of goods according to agreement.
12. Rebate: it is an amount which is claimed by the hire purchaser from the hire vendor in case if he decides to remit the balance of the purchase price (future installments) in lumpsum without continuing the hire purchasing agreement.
The rebate is calculated as follows
Rebate = 2/3 X hire charges X (no. of installments due/total no. of installments)
13. Termination of hire purchase agreement: The hirer can terminate the agreement at any time by giving the 14 days notice to the owner. However what ever the amount is already paid by the hirer is considered as a hire charges.

2 comments:

  1. Answer of mcq question no.5 is wrongly highlighted, the answer is cost less depreciation. If you enable the right click option the people will know about your knowledge and talent.

    ReplyDelete
  2. Please correct answer of question no.5 in mcq.

    ReplyDelete

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