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CMA Intermediate · Financial Accounting · Hire Purchase and Installment Sale Transactions

Under a hire purchase agreement, at which point does ownership of the goods pass to the hirer?

Ownership passes to the hirer only after the last installment is paid and the option to purchase is exercised. Until then the hirer is merely a bailee holding the goods, and the hire vendor remains the owner, unlike in an outright sale.

  1. AOn delivery of the goods to the hirer
  2. BOn payment of the first installment
  3. COn payment of the last installment and exercise of the option to purchase, if anyCorrect
  4. DOn signing of the agreement

Explanation

In a hire purchase agreement the hirer is only a bailee until the last installment is paid and the option to buy is exercised. Delivery, the first installment or signing the agreement do not transfer ownership; those would apply to an outright sale.

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