(a) List Four sources of credit available to a sole trader. (b) Explain the following credit instruments: (i) acceptance credit; (ii) luncheon voucher; (iii) bill of exchange. (c) State two advantages and three disadvantages of hire purchase to the seller.
(a) Sources of Credit Available to a Sole Trader: (i) Loans. (ii) Overdraft. (iii) Hire purchase. (iv) Trade credit (v) Leasing of equipment. (vi) Credit card. (vii) Revolving credit.
(b) Explanation of the Following Credit instruments: (1) Acceptance credit:-This is a method of borrowing where the company draws a cheque for banks to accept so that the company will discount the cheque on the money market. (ii) Luncheon Voucher:- These are vouchers purchased at a discount by companies to be given to staff to cover lunch allowance as motivation. (iii) Bill of exchange:- It is an unconditional order in writing addressed by one person to another, signed by the person giving it, requiring the person to pay a sum certain in money to the order of the specified person or bearer at a fixed or determinable future time.
(c) Advantages of hire purchase to the seller: (i) The seller retains ownership of goods until full payment is made. (ii) Profit will increase as a result of increase in sales (iii) It increases the rate of turnover. (iv) Goods could be reprocessed if payment fails. (v) There would be Increase in cash flow for the seller if the hire purchase is externally financed. Disadvantages of Hire Purchase to the Seller: (i) It may lead to litigation. (ii) It leads to tying down huge capital. (iii) The buyer may abscond with the goods. (iv) There could be high cost of recovering the debt. (v) If the customers fail to pay their debts, it turns out to be bad debt. (vi) Continuous disagreement during recovery of debts Could create a bad image for the company, (vii) Goods repossessed may be difficult to be resold.
Contributions ({{ comment_count }})
Please wait...
Modal title
Report
Block User
{{ feedback_modal_data.title }}