Lesson Notes By Weeks and Term - Senior Secondary 3

Hire purchase and installment account

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Term: 1st Term

Week: 3

Class: Senior Secondary School 3

Age: 17 years

Duration: 40 minutes of 2 periods each

Date:       

Subject:      Financial accounting

Topic:-       Hire purchase and installment account

SPECIFIC OBJECTIVES: At the end of the lesson, pupils should be able to

  1. Explain the meaning of hire purchase
  2. List and explain some terminologies in hire purchase

INSTRUCTIONAL TECHNIQUES: Identification, explanation, questions and answers, demonstration, videos from source

INSTRUCTIONAL MATERIALS: Videos, loud speaker, textbook, pictures

INSTRUCTIONAL PROCEDURES

PERIOD 1-2

PRESENTATION

TEACHER’S ACTIVITY

STUDENT’S ACTIVITY

STEP 1

INTRODUCTION

The teacher reviews the previous lesson on purchase of business account

Students pay attention

STEP 2

EXPLANATION

She explains the meaning of hire purchase

Students pay attention and participates

STEP 3

DEMONSTRATION

She lists and explains some terminologies in hire purchase

Students pay attention and participate

 

STEP 4

NOTE TAKING

The teacher writes a summarized note on the board

The students copy the note in their books

 

NOTE

HIRE PURCHASE

Hire purchase is a system of installment payment whereby the buyer or hirer has possession and use of the goods while the owner retains the ownership of goods until the final payment has been made. The amount paid for the goods is called hire purchase price, which is normally higher than the normal selling price of the item, this is as a result of the hire purchase interest which is also referred to as finance charge.

 

A deposit i.e. the initial sum is paid by the hirer at the inception of the hire purchase transaction after which other installments will be paid at regular intervals to liquidate the balance of hire purchase price at the end of the hire period.

 

Accounting entries

 

The accounting entries shall be considered looking at the two parties to hire purchase transaction,

i.e. the seller and the hirer (buyer).

 

Buyer’s books

 

There are two basic methods of preparing hire purchase transactions in the buyer’s books:

 

i. Interest paid method

ii. Interest suspense method

 

Interest paid method

 

This is the commonest and simplest method of treating hire purchase transaction. Using this method, the total amount to be paid on the asset is debited and then credited to the vendor account.

a. Asset acquired on hire purchase terms: DR: Hire purchase asset account

CR: Hire purchase creditor account

 

b.  Payment of initial deposit

DR: Hire purchase creditor account CR: Bank account

 

c. Interest due at the date of installment DR: Hire purchase interest account CR: Hire purchase creditor account

 

d.  Installment cash payment made

 

DR: Hire purchase creditor account CR: Bank account

e.  Interest written to profit and loss

 

DR: Profit and loss account

 

CR: Hire purchase interest account

 

f.   Depreciation on asset

DR: Profit and loss account

CR: Provision for depreciation account

 

EVALUATION:    1. Explain the meaning of hire purchase

  1. List and explain some terminologies in hire purchase

CLASSWORK: As in evaluation

CONCLUSION: The teacher commends the students positively