Observation

Few candidates attempted this question some of who performed well in part (a) while others still could not list credit instrument. For (b) part of the question, many candidates did not understand that it is an applied question. That the advantages and disadvantage of hire purchase is as it affects Mr. Sylva the person considering the hire purchase as a source of finance. Also, some candidate wrote the advantages of bank loan for hire purchase.

The expected responses are.

 (a)        Credit Instruments Used in Business Transactions

1. Promissory note
2. Hire purchase
3. Cheque
4. Bill of Exchange
5. Credit card
6. Letter of credit
7. Trade credit
8. Bank draft
9. Acceptance credit      

                            
(b)        Advantages of Hire Purchase

1. Mr. Sylva will be able to raise more working capital.
2. The need to borrow from other sources will be removed.
3. There are less stringent conditions on hire purchase payment than borrowing from the bank.
4. Mr Sylva’s sales will increase because he will be able to offer credit to his customers.
5. There is no collateral security requirement in hire purchase.
6. Mr Sylva’s financial records are kept confidential as such he can also borrow from other sources.

                   Disadvantages of Hire Purchase

1. There will be an increase in the price of the product as a result of the interest added.
2. There is the additional cost of collecting debt from defaulters.
3. His capital is tied up as a result of non-recoverable debts.                                             
4. Defaulters can sue Mr Sylva as a result of publicizing their names.
5. The goods recovered or repossessed by Mr Sylva may not be fit for resale.

The seller will have to resort to court action to recover the items if a certain percentage has been paid.