UK GAAP for Business and Practice
Complete with summaries of current standards and key implementation dates, this book provides a concise and easily accessible guide to all the recent changes in UK GAAP, and their likely practical impact.
TABLE OF CONTENTS UK GAAP for Business and Practice
Chapter 14: Hire Purchase and Leasing
14.1 Introduction Financing of Fixed Assets
A company may acquire the right to use a fixed asset over its useful life in one of a number of ways. These include:
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outright purchase for cash;
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outright purchase using the proceeds of a secured or unsecured loan;
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hire purchase (or lease purchase);
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finance leasing.
In the case of (1) and (2), legal title to the fixed asset is obtained at the date of purchase. In the case of (3), title is obtained when the final instalment has been paid and the option to purchase exercised. In the case of an agreement under a finance lease, as far as the United Kingdom is concerned legal title can never pass to the lessee.
14.2 Hire Purchase Accounting for the Hirer
a Introduction
Under a hire purchase agreement the owner of goods leases them to a person called the hirer, on the terms that the hirer shall pay to the owner a number of instalments, until a price has been paid, when the ownership of the goods will either pass automatically to the hirer, or he may exercise an option to purchase them by the payment of a stated small sum. Thus the property in the goods does not pass to the hirer until he has paid the last instalment or exercised his option to purchase.
b Substance Over Form
Traditionally assets acquired under hire purchase agreements are brought into the balance sheet at cash price and depreciated over their useful economic life to the user. A...
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