BANKING GENERAL KNOWLEDGE
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Should be straight line only
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Based on the cost price of the asset only
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Based on the total cost including interest
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No depreciation should be provide until the final payment is made
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Detailed explanation-1: -Therefore, the depreciation on an asset purchased through hire purchase should be Based on the cost price of the asset only. So, the correct answer is “Option B”.
Detailed explanation-2: -The depreciation on an asset purchased through hire purchase should be based on the cost price of the asset only. Was this answer helpful?
Detailed explanation-3: -What is the tax treatment with Hire Purchase? Depreciation is not allowed for tax purposes but capital allowances are available. Investment in vehicles, plant & machinery attracts varying allowances dependent upon a business’s size and the nature of the asset being financed.
Detailed explanation-4: -The term depreciation refers to an accounting method used to allocate the cost of a tangible or physical asset over its useful life. Depreciation represents how much of an asset’s value has been used. It allows companies to earn revenue from the assets they own by paying for them over a certain period of time.
Detailed explanation-5: -Hire Purchase Accounting: Under Hire Purchase System, hire purchaser pays the cost of purchased asset in number of instalments. The ownership of the goods is transferred by the Hire Vendor only after payment of outstanding balance.