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1922

Hp agreement - sale of asset

Hi, I am really not clear on the treatment of the HP creditor on the sale of an asset.  What do I do with the balance of the HP Creditor £76,000?  What am I missing?  Thanks for any help.

Jim

eg  Car bought for £89,000, Loan £79,000, deposit paid privately £10,000, Capital element of loan paid £3,000,

Car later sold (traded in) for £60,000.

Dr Vehicles   £89,000

Cr HP creditor £89,000

Dr HP Creditor £10,000

Cr Capital a/c £10,000

Dr HP Creditor £3,000

Cr Bank  £3,000

Dr Capital a/c £60,000

Cr Vehicles  £60,000

Dr Loss on sale £29,000

Cr Vehicles £29,000

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Never mind the car ...

What happened to the HP agreement?  Find out that and you will be able to work out the book-keeping.

I thought it was a breach of an HP agreement to dispose of the asset for which so little had been paid under the agreement.  That would mean that the loan on the original car would be due for immediate repayment and possibly replaced by a new HP agreement on the new car.  Or are you intending to carry on the payments on the original HP agreement despite the fact that the asset on which the loan is secured no longer exists?

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Missing value of the new car

The old car traded in for £60k, and if that's the cost of the new car, then no changes to the HP creditor and capital account

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HP agreement

That is the key. You should not normally have been allowed to sell the car without the lender's agreement. If you have, it stays where it is and your continuing payments will simply reduce it. If any or all of it has been foregone on the sale, that should be added to the gain/loss on sale.

But I also think your Dr £60k to capital a/c is wrong.

As has been suggested, readers need to know exactly what has happened to be able to help further.

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Look out for the coon.

Looks like someone's walked off with £60k!

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Euan is spot on - again

Clearly you need to confirm if there was a HP Agreement, or a lease purchase agreement. The sale receipt and any shortfall against unpaid capital and interest, and possible an early surrender premium may be due immediately to the lessor. Remember "Nemo dat quod non habet" as my old Latin teacher may have said if i had ever paid any attention to her. (perhaps that is why I was "invited" not to join her class the following year.

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