By Rahul Jain Hire Purchase is a method of acquiring assets without having to invest the full amount in buying them. Typically, a hire purchase agreement allows the hire purchaser sole use of an asset for a period after which they have the right to buy them, often for a small or nominal amount. The beneft of this system is that companies gain immediate use of the asset without having to pay a large amount for it or without having to borrow a large amount.The owner of the asset gives the possession of the asset to the Hirer with an understanding that the Hirer will pay agreed installmentsover a specifed period of time. The ownership of the asset will transfer to the hirer on the payment of all installments.The Hirer will have the option of terminating the agreement any time before the transfer of ownership of assets. ( Cancellable ease!Hence Hire purchase is where a buyer cannot a"ord to pay the as#ed price as a lump sum but can a"ord to pay a percentage as a deposit, the contract allows the buyer to hire the goods for a monthly rent. $hen a sum equal to the original full price plus interest has been paid in equal installments, the buyer may then e%ercise an option to buy the goods at a predetermined price (usually a nominal sum! or return the goods to the owner. &f the buyer defaults in paying the instalments, the owner can repossess the goods which di"erentiates HP from other unsecured consumer credit systems and benefts the economy because mar#ets can e%pand while minimising the seller's e%posure to ris# of default. (qually, HP is advantageous both to private consumers because it spreads the cost of e%pensive items over an e%tended time period, and to certain business consumers in that the balance sheet and ta%ation treatment of hire purchased goods di"ers from outright capital purchases. The need for HP is reduced when consumers have collateral or other forms of credit are readily available.The asset is put on the balance sheet of the hirer, with a corresponding liability, and the hire installments are bro#en into principal and interest, with the latter being ta#en as the hire)vendor's income and the hirer's e%pense.Hire vendor record it as receivablesHire Purchase Financing Lease FinancingHirer is entitled to claim Depreciation Tax Shield.Lessee is not entitled to claim depreciation tax shield.Hirer can charge only interest Portion.Lessee can charge theentire lease payments as expense for tax computation.Once the hirer has paid all instalments, he becomes the oner of the asset and can claim its sal!age !alue.Lessee does not become the oner of the asset. Therefore he has no claim o!er the asset sal!age !alue.&nstallment *ale is a credit sale and the legalownershipoftheassetpasses immediatelytothebuyerassoonas theagreementismadebetweenthe buyer and the seller.(%cept for the timing of the transfer of ownership,installmentsaleandhire purchase are similar in nature.