HP Interest

HP Interest

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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)

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By Davie0512
17th Feb 2013 19:33

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.

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By User deleted
17th Feb 2013 22:11

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).

Thanks (1)
Replying to alan.rolfe:
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By ash428
18th Feb 2013 11:25

I had exactly the second method you outline very comprehensively!

I don't know why but I thought it was wrong. Oh well least its good to have a little reassurance.

Once again many thanks.

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