Car Purchase y Company Where It Shows On The Balance Sheet

Car Purchase y Company Where It Shows On The Balance Sheet

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Discussion

DSLiverpool

Original Poster:

14,671 posts

201 months

Wednesday 17th December 2014
quotequote all
And not cash, is it HP ?

Eric Mc

121,779 posts

264 months

Wednesday 17th December 2014
quotequote all
What is the question?


DSLiverpool

Original Poster:

14,671 posts

201 months

Wednesday 17th December 2014
quotequote all
Sorry I'm not sure what happened there - what's the way to buy a car where it's full value is added to the balance sheet whilst on credit - HP lease ? / HP

CaptainSlow

13,179 posts

211 months

Wednesday 17th December 2014
quotequote all
All car purchases will go on the balance sheet.

DSLiverpool

Original Poster:

14,671 posts

201 months

Wednesday 17th December 2014
quotequote all
CaptainSlow said:
All car purchases will go on the balance sheet.
Ok what's the way to purchase a car on credit and the whole value goes on the balance sheet !

SluffMcDuff

43 posts

123 months

Wednesday 17th December 2014
quotequote all
As long as you're actually purchasing it, be it cash, contract purchase or hire purchase it goes on the balance sheet. If you contract hire it then it doesn't (for now at least)

Eric Mc

121,779 posts

264 months

Wednesday 17th December 2014
quotequote all
If you buy an asset on credit - such as by an HP (or a bank loan - the accounting is as follows -

Debit - Fixed assets (with the capital cost of the vehicle)

Credit - current liabilities - with the capital value of the loan

Both of the above headings are shown in the business balance sheet.

Each month, you allocate the capital value of the loan payment against the loan balance and you allocate the interest element of the loan repayment to an expense heading called "Loan Interest" or "HP Charges" in the profit and loss account.

There are some permutations on the above but this is the simplest way of accounting for assets acquired using loans or finance.

CaptainSlow

13,179 posts

211 months

Wednesday 17th December 2014
quotequote all
SluffMcDuff said:
As long as you're actually purchasing it, be it cash, contract purchase or hire purchase it goes on the balance sheet. If you contract hire it then it doesn't (for now at least)
Contract Purchase is an operating lease so not on the BS.

Countdown

39,690 posts

195 months

Wednesday 17th December 2014
quotequote all
Don't forget depreciation wink

p.s. the amounts payable after 12 months should be classed as "Creditors > 1 year" strictly speaking ...

Countdown

39,690 posts

195 months

Wednesday 17th December 2014
quotequote all
CaptainSlow said:
SluffMcDuff said:
As long as you're actually purchasing it, be it cash, contract purchase or hire purchase it goes on the balance sheet. If you contract hire it then it doesn't (for now at least)
Contract Purchase is an operating lease so not on the BS.
Are you sure?

Contract purchase is a finance lease and therefore should be capitalised. The car isn't being returned to anybody after the lease period is it?

SluffMcDuff

43 posts

123 months

Wednesday 17th December 2014
quotequote all
CaptainSlow said:
SluffMcDuff said:
As long as you're actually purchasing it, be it cash, contract purchase or hire purchase it goes on the balance sheet. If you contract hire it then it doesn't (for now at least)
Contract Purchase is an operating lease so not on the BS.
It isn't an operating lease. It definitely sits on the balance sheet which is one of the downsides compared to contract hire.

SluffMcDuff

43 posts

123 months

Wednesday 17th December 2014
quotequote all

CaptainSlow

13,179 posts

211 months

Wednesday 17th December 2014
quotequote all
Yes, Contract Purchase is the same as Contract Hire except the Lessee has the right (but not obligation) to purchase the asset after the end of the lease term. As such, risk of ownership remains with the Lessor and is therefore an operating lease for the Lessee. The VAT treatment differs though, which makes Contract Purchase preferable for Lessees unable to recover input tax.

Alpinestars

13,954 posts

243 months

Wednesday 17th December 2014
quotequote all
CaptainSlow said:
Contract Purchase is an operating lease so not on the BS.
Contract purchase is a balance sheet time. Contract hire is an operating lease.

CaptainSlow

13,179 posts

211 months

Wednesday 17th December 2014
quotequote all
Despite what is on the BVRLA guidance, CP is an operating lease.

Alpinestars

13,954 posts

243 months

Wednesday 17th December 2014
quotequote all
CaptainSlow said:
Yes, Contract Purchase is the same as Contract Hire except the Lessee has the right (but not obligation) to purchase the asset after the end of the lease term. As such, risk of ownership remains with the Lessor and is therefore an operating lease for the Lessee. The VAT treatment differs though, which makes Contract Purchase preferable for Lessees unable to recover input tax.
There is no option to purchase a contract hire car. It's a rental contract = off balance sheet.

Cf contract purchase where a person agrees to purchase a vehicle via a series of monthly instalments. Ownership ultimately passes to the person = balance sheet.

DSLiverpool

Original Poster:

14,671 posts

201 months

Wednesday 17th December 2014
quotequote all
Thank you chaps

CaptainSlow

13,179 posts

211 months

Wednesday 17th December 2014
quotequote all
Alpinestars said:
There is no option to purchase a contract hire car. It's a rental contract = off balance sheet.

Cf contract purchase where a person agrees to purchase a vehicle via a series of monthly instalments. Ownership ultimately passes to the person = balance sheet.
Agree with CH.

With CP, the lessee agrees to either pay the balloon at the end of term or walk away. Ownership not guaranteed and no residual value risk to the lessee. Even page 19 of the BVRLA contradicts itself. Even SSAP 21 has this as an operating lease.

Alpinestars

13,954 posts

243 months

Wednesday 17th December 2014
quotequote all
CaptainSlow said:
Agree with CH.

With CP, the lessee agrees to either pay the balloon at the end of term or walk away. Ownership not guaranteed and no residual value risk to the lessee. Even page 19 of the BVRLA contradicts itself. Even SSAP 21 has this as an operating lease.
SSAP 21? You're showing your age!

Edited by Alpinestars on Wednesday 17th December 23:45

CaptainSlow

13,179 posts

211 months

Wednesday 17th December 2014
quotequote all
True, but was using as an example of most subjective standard. It's all IAS 17 now of course...bleuh...at least make my dual reporting with US GAAP a little easier.