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Difficulty: MediumHire Purchase: Features, Statutory Requirements, Rights, and Obligations

A cold-storage logistics firm acquired an industrial freezer under a hire purchase agreement. The cash price of the freezer is ₦1,500,000\text{₦}1,500,000. The contract required an initial deposit of 20%20\% of the cash price and 1010 equal monthly installments of ₦140,000\text{₦}140,000 each. What is the total hire purchase charge (interest) paid by the firm on this transaction?

Answer: 200000 ₦

Answer

The total hire purchase charge (interest) paid on the freezer is ₦200,000.
The total hire purchase price is determined by adding the 20% initial deposit (₦300,000) to the 10 monthly installments of ₦140,000 (₦1,400,000), giving ₦1,700,000. Subtracting the cash price of ₦1,500,000 gives the total hire purchase charge (interest) of ₦200,000.

Step-by-Step Solution

1
Calculate the initial deposit amount
₦300,000
The deposit is 20% of the cash price of ₦1,500,000 (0.20 × ₦1,500,000).
2
Calculate total installment payments
₦1,400,000
The hirer pays 10 equal installments of ₦140,000 each (10 × ₦140,000).
3
Determine the Total Hire Purchase Price
₦1,700,000
The total cost under hire purchase equals the deposit plus total installments (₦300,000 + ₦1,400,000).
4
Calculate the Hire Purchase Charge (Interest)
₦200,000
The extra cost/interest is the difference between the Total Hire Purchase Price and the Cash Price (₦1,700,000 - ₦1,500,000).

Key Concept

Hire Purchase Price and Interest Calculation
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Topics

Hire Purchase: Features, Statutory Requirements, Rights, and Obligations

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