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Journals for refinancing of an asset for cash flow

Asset Refinanced for Cash flow purposes.

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I have a situation that I can't get my head round. The company I work for has an asset which was obtained through HP. After paying this HP for a number of years there was around 5k left to pay. Due to cash flow problems the directer decided to refinance the asset to inject some cash into the business. He took out a new HP, with the finance company valuing the asset at £20k + VAT. This meant that the remaining balance of the initial HP was cleared and the business received a £15k cash injection. But I can't quite get my head around the journals required. I have the added problem that the asset is valued at £15k on our books.

Any advice would be much appreciated.

Thanks in advance.





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15th May 2019 10:16

Dr Bank 15k
Dr Old HP 5k
Cr New Loan £20k

springs to mind as the obvious, on the face of things, answer, however the vat bit puzzles me suggesting a sale.

I have done this sort of thing once re fund raising (during the financial crash with cars, so no vat) but to get it to work re paperwork from the HP company point of view we actually needed to sell the cars to a garage and then purchased them from said garage on HP at the new prices ascribed.

I would look very carefully at the paperwork to see what has actually happened, it may be a sale and repurchase, though that then maybe gets you into issues of substance over form and possibly financial instrument measurement under FRS102.

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By johnt27
15th May 2019 11:23

Standard sale and repurchase transaction.

The VAT is just a manifestation of the fact the HP company have notionally acquired the assets which can be dealt with as a VAT only invoice.

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