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Accounting for this finance agreement -

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Company has taken delivery of new Tesla car.   Cost is 50k plus vat.  Finance agreement is labelled hire purchase agreement.   Deal is that company pays a £4 upfront payment plus £800 per month for 36 months.  There is a ballon at the end of c24k.  How should this be accounted for?   If this is a lease contract what about recovery of vat? 

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RLI
By lionofludesch
19th Dec 2019 13:18

It says "hire purchase agreement".

So I vote that's what it is.

It's just got a big final payment. No doubt to pressure the borrower into getting a new car.

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By paul.benny
19th Dec 2019 14:03

lionofludesch wrote:

It says "hire purchase agreement".

So I vote that's what it is.

+1

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By Bobbo
19th Dec 2019 13:38

I assume the £4 should say £4,000. Are these figures for payments correct though? It suggests total payments of £56,800 (£4k + £24k + £800x36) when the price of the car is £60,000 (£50k plus vat). Would have expected the total payments to at least equal the price of the car, if not exceed it.

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By blok
19th Dec 2019 15:14

Sorry. The deposit is £10k. 36 monthly payments of £910 and a final payment of £25k.

The accountants are saying substance over form and it should be treated as a rental agreement!

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RLI
By lionofludesch
19th Dec 2019 15:26

blok wrote:

The accountants are saying substance over form and it should be treated as a rental agreement!

Rubbish.

Ask them to point to the bit in FRS 102/105/whatever which supports that.

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By Hair Bear
19th Dec 2019 16:13

If there is an option to hand the machine back rather than paying the balloon payment then I think that section 20.5 would cover it.

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