Assets acquired on Hire Purchase Basis

Where a movable asset, such as motor car or machinery has been acquired on a hire-purchase basis, it should preferably be adjusted in accounts at its cash value by raising a liability for the amount payable to the financing company ; also the interest payable along with each instalment, whether separately or included therein should be debited to the interest account. Payments under a hire purchase agreement should be vouched having regard to the conditions contained therein, as well as on a consideration of the manner in which amounts paid have been adjusted, e.g., the amount paid as a penalty for late payment of instalments should be debited as an expense instead of being added to the cost of the assets.