Accounting for Leases and HP
Discussion
Assets acquired under HP and Finance Lease agreements are generally treated the same way for accounting purposes.
The asset is capialised in the balance sheet and the overall debt is shown as a liability.
The repayments are offset against the loan balance. Interest and finance charges are posted to the profit and loss account spread over the length of the hire/lease period.
With HP, VAT can be reclaimed on the capital cost of the asset.
With a lease VAT can be reclaimed on the cpaital cost if it is a finance lease. There are different rules for operating (rental) leases.
Depreciation on the capital cost of teh asset is allocated to the profit and loss account over the economic life of the asset.
If the lease is an operational lease, these are generally treated differently as they are more of a "rent" type situation.
In this case, the regular rental amounts are oallocated directly to the profit and loss account as "Leasing charges". The asset isn't capitalised.
If there is VAT on each monthly repayment, then that VAT can be reclaimed.
In both scenarios, VAT reclaims on motor cars are usually restricted.
The asset is capialised in the balance sheet and the overall debt is shown as a liability.
The repayments are offset against the loan balance. Interest and finance charges are posted to the profit and loss account spread over the length of the hire/lease period.
With HP, VAT can be reclaimed on the capital cost of the asset.
With a lease VAT can be reclaimed on the cpaital cost if it is a finance lease. There are different rules for operating (rental) leases.
Depreciation on the capital cost of teh asset is allocated to the profit and loss account over the economic life of the asset.
If the lease is an operational lease, these are generally treated differently as they are more of a "rent" type situation.
In this case, the regular rental amounts are oallocated directly to the profit and loss account as "Leasing charges". The asset isn't capitalised.
If there is VAT on each monthly repayment, then that VAT can be reclaimed.
In both scenarios, VAT reclaims on motor cars are usually restricted.
Hi Eric,
Fantastic response as usual, So if we buy a truck for £20k and pay a deposit comprising of all the vat and 10% of the cost which we have done, I post the invoice to the creditor (Ford) capitalise the asset and then post the repayments to the Ford a/c and depreciate the asset over it's useful life and reclaim all the vat in one go
I think
Fantastic response as usual, So if we buy a truck for £20k and pay a deposit comprising of all the vat and 10% of the cost which we have done, I post the invoice to the creditor (Ford) capitalise the asset and then post the repayments to the Ford a/c and depreciate the asset over it's useful life and reclaim all the vat in one go
I think
If its a HP -
Dr Fixed Assets
Cr Purchase ledger (account of truck supplier)
with the basic cost of the truck
This is the posting of the purchase invoice for the truck and the point where you reclaim the VAT on the cost of the truck.
Dr Purchase Ledger (Truck Supplier account)
Cr HP liability Account
This entry will clear the supplier's ledger account and create the new liability to the HP company.
Dr HP Interest Suspense a/c - Cr HP liability account
This adjustment increases the liability to the HP company by adding onto the capital amount due the full value of the finance costs in the HP agreement. It also creates an HP Interest Suspense (Dr) account.
Every month, the HP repayment is debited to the HP liability account, reducing it on a monthly basis
Also, every month, a journal is made for the monthly HP charge. This journal is
Dr HP Interest Profit and Loss account
Cr HP Interest Suspense account
Over the course of the repayments, this monthly journal will gradually decrease the balance sitting in the HP Interest Suspense Account until after 36/40/50/60 months or whatever the full repayment period is, the Interest Suspense Account will eventually be empty.
Dr Fixed Assets
Cr Purchase ledger (account of truck supplier)
with the basic cost of the truck
This is the posting of the purchase invoice for the truck and the point where you reclaim the VAT on the cost of the truck.
Dr Purchase Ledger (Truck Supplier account)
Cr HP liability Account
This entry will clear the supplier's ledger account and create the new liability to the HP company.
Dr HP Interest Suspense a/c - Cr HP liability account
This adjustment increases the liability to the HP company by adding onto the capital amount due the full value of the finance costs in the HP agreement. It also creates an HP Interest Suspense (Dr) account.
Every month, the HP repayment is debited to the HP liability account, reducing it on a monthly basis
Also, every month, a journal is made for the monthly HP charge. This journal is
Dr HP Interest Profit and Loss account
Cr HP Interest Suspense account
Over the course of the repayments, this monthly journal will gradually decrease the balance sitting in the HP Interest Suspense Account until after 36/40/50/60 months or whatever the full repayment period is, the Interest Suspense Account will eventually be empty.
I won't have access to a computer over the next few days so wion't be able to follow up.
What I gave you was the "text book" series of postings (as set out in my ancient and venerable 1970s edition of Spicer and Pegler's "Accounting")for assets acquired under HP or Finance Leased assets. Some people may use slight permutations on the method described.
What I gave you was the "text book" series of postings (as set out in my ancient and venerable 1970s edition of Spicer and Pegler's "Accounting")for assets acquired under HP or Finance Leased assets. Some people may use slight permutations on the method described.
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