Car Purchase y Company Where It Shows On The Balance Sheet
Discussion
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.
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 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.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?
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.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.
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.
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.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.
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.
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!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.
Edited by Alpinestars on Wednesday 17th December 23:45
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