My client took out a finance lease and so I am claiming AIA on the whole amount.
My problem is I cannot get the bank balance to reconcile as he makes monthly payments of £285 per month which I don't expense (because I'm claiming the full cost as Capital Allow).
What would be the bookkeeping to get my bank bal to reconcile??
SORTED NOW - I'VE BEEN REFERRED TO THE CORRECT FRS
Replies (6)
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Even although there is AIA claimed on the asset it still needs to be shown in the accounts as an asset in full, and the credit side of that transaction should be a liability that corresponds to the HP agreement.
When you credit your bank account (£285) you will put the dr to the said liability above - reducing the amount still owed. Only the finance element of the lease should go to the P&L (the interest payments) which should be offset against the liability as well, increaseing it to the balance outstanding at the year end.
When buying:
Dr Asset
Cr Lease Liabilities
The payment:
Cr Bank
Dr Lease Liabilities
The Interest:
Dr Finance Interest
Cr Lease Liabilities
The AIA is a tax adjustment which should not effect the treatment of the asset in the accounts.
Hope this helps!
When your client bought the asset under the finance lease you made an entry something like:
Dr Asset
Cr Bank (deposit paid possibly)
Cr HP Creditor
May be slightly different depending on how deposit/initial payment funded-if a vehicle may be a trade in etc with nothing/little paid from bank, you need to look at the agreement and the invoice to see what is appropriate.
Each payment made thereafter is:
Dr HP Interest
Dr HP Creditor
Cr Bank
The sum of the payments made for the credit will be greater than the amount financed, the difference needs debited to the P & L each period (H P Interest), how you allocate the interest./capital split depends on what is appropriate (Sum of digits/straight line?)
No idea if a company or not but reading SSAP21 should give a good understanding of the though process or any basic accounting textbook ought to cover this.
SSAP21 used to be a good starting point re these
http://frc.org.uk/Our-Work/Publications/ASB/SSAP-21-Accounting-for-lease...
here also is FRSSE under leases.
https://frc.org.uk/Our-Work/Publications/Accounting-and-Reporting-Policy...(effective-January-2015).pdf
This is very basic stuff and your question suggests you maybe should hand this over to someone with a little more experience.
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... why are you claiming AIA on a finance lease asset????
Assuming the OP meant a hire purchase agreement, opposed to an actual lease.
Perhaps
But he wouldn't be the first to fail to understand the distinction - and make a complete pig's ear of the tax treatment.. A finance lease is a finance lease. An HP agreement is an HP agreement. Despite what some may think, the terms are not interchangeable.
The OP's biggest pigs ear is to think that claiming AIA (rightly or wrongly) has any effect on the accounting entries.