Theory question 107
Purchase and Sale of GoodsCommerce 2 (essay)
(a) What is hire purchase?
(b) Give two advantages and two disadvantages each of hire purchase to
(i) the buyer;
(ii) the seller.
Show the model answer
(a) Hire purchase is a credit arrangement where the buyer pays a deposit, takes possession of the goods and pays the balance in instalments; ownership passes after the last instalment.
(b)(i) Buyer – advantages (any two): enjoys use of goods at once; pays from income; no large capital needed. Disadvantages (any two): pays more than the cash price; goods may be repossessed if he defaults; may overspend/burden of instalments.
(ii) Seller – advantages (any two): increased sales; extra income from interest; can repossess goods if buyer defaults. Disadvantages (any two): risk of bad debts; capital tied up; cost of collecting instalments; repossessed goods may be damaged/lose value.
Give two points in each of the four groups.