This is a relatively straight forward concept but I've been going round and round in circles!!!
Client has purchased a van for 5,754
Interest amount is 1,517.72
Total repayable 7271.72 over 3 years
My question is how to record the interest amount? Should it be expensed in the year it occurred and not shown as a NC liability? what would the double entries be?
I don't know whether its the Sunday afternoon effect but i need help!
Replies (3)
Please login or register to join the discussion.
Hi
The asset should be brought in at cost so that the HP liability is £5,754. The repayments should be split between capital and interest with the capital being debited against HP creditor and interest charged to the P&L.
Generally ...
... although you should split the interest to an actual basis, or a rule of 78 basis as an approximation, for a single vehicle most accounts would spread the interest evenly over the number of instalments.
I would usually
Dr Assets £5754
Cr HP £5754
Then for the repayments
Dr HP Account - £159.83 (£5754/36)
Dr HP Interest (P&L) - £42.16
Cr Bank - £201.99
ALTERNATIVELY, you could
Dr Assets - £5754
DR HP Interest B/S - £1517.72
CR HP Account - £7271.72
Then for the repayments
DR HP Account - £201.99
CR Bank - £201.99
Then at the end of the year do a journal
DR HP Interest P&L - N x £42.16
CR HP Interest B/S - N x £42.16
(Where N is the number of repayments in the year).