Partial and Full Repossession Accounting Partial and full repossession accounting are methods used in accounting for hire purchase and installment systems. T...
Partial and full repossession accounting are methods used in accounting for hire purchase and installment systems. These methods allow a company to allocate the cost of a hire purchase or installment over its useful life, rather than recording it in its entirety at once.
Partial Repossession:
Under this method, a portion of the cost of the asset is allocated to each period in which the asset is used.
The remaining balance is allocated to the period in which the asset is fully paid.
This method is more common for tangible assets with a finite useful life.
Full Repossession:
Under this method, the entire cost of the asset is allocated to the period in which it is purchased or installed.
This method is typically used for intangible assets or assets with an indefinite useful life.
Examples:
A company purchases a machine for 10,000 would be allocated as follows:
2/3 of the cost (approximately $6,67) would be allocated to the first year of useful life.
1/3 of the cost (approximately $3,33) would be allocated to each of the remaining years.
A company purchases a software license for 500 would be allocated to the first year of use.
These methods can provide companies with more accurate financial reporting and insights into their asset management