Purchase a fixed asset

If you buy a fixed asset and you finance it with a loan or hire purchase, you’ll need to include any deposits and fees you were charged at the same time as the purchase.

To help you keep track of how much you have left to pay, record your monthly repayments and any interest charged in your accounts we recommend that you:

1. Create new ledger accounts for record hire purchase fees.
2. Record the original purchase using a journal. The journals may vary depending on whether you have used part-exchange.
3. Record the re-payments, including an interest charged.

Before you record the hire purchase agreement, you need to create additional ledger accounts to record the values. We recommend you create the following ledger accounts:

If you’re already using any or all of the nominal codes above, just use different ones. We use the Category, rather than the Nominal Code to determine where the values appear on your reports.

1. From More, Settings, then Business Settings, then from Financial Settings, select Chart of Accounts.
2. Select New Category.
3. Enter the details and Save.

Here you buy an asset using a loan or hire purchase but without part-exchange.

For example

• You buy a car for 12,000 including VAT.
• In addition to this, you pay documentation fees of 50, an option fee of 25 and road tax of 150, giving a total of 12,225
• You pay a deposit of 500.
• You use the Standard VAT Scheme and can reclaim VAT on the purchase.

1. From Adjustments, select Journals then New Journal.
2. Enter the date and a reference for the journal and, if required, enter a description.

3. Enter the relevant information to record the hire purchase and Save.

   For example:

   Category*	Details	Debit	Credit	Include on VAT Return?
   Motor Vehicles – Cost (0050)	Net value of new asset	10000.00	0.00	Selected
   VAT on Purchases (2201)	VAT on new vehicle	2000.00	0.00	Selected
   Motor Expenses (7300)	Document and option fee	75.00	0.00	Not selected
   Licences (7301)	Road tax fee for new vehicle	150.00	0.00	Not selected
   Current (1200)	Bank deposit paid	0.00	500.00	Not selected
   Hire purchase (2300)	Total purchase price less the deposit	0.00	11725.00	Not selected

VAT on hire purchase

Sometimes you part exchange an existing asset for a new asset, such as when buying a new car or other vehicle.

When you part exchange, you need to remove the value of your part exchanged asset from your balance sheet as you no longer own it. To record the part exchange

1. Record the disposal of the old asset.
2. Move any depreciation you’ve recorded to your Sale of Assets ledger account.
3. Record the purchase of the new asset.
4. Reduce your hire purchase liability by the amount of the asset you’ve part exchanged.

In the following steps, we'll use this example:

• You have a car that originally cost 6,000 and has depreciated by 4,000.
• You buy a new car for 12,000, including VAT.
• You part exchange your old car for 2,500
• In addition to this, you pay documentation fees of 50, an option fee of 25 and road tax of 150, giving a total of 12,225
• You pay a deposit of 500.
• You use the Standard VAT Scheme and can reclaim VAT on the purchase.

Record a journal for the purchase

1. From Adjustments, select Journals, then New Journal.
2. Enter the date and a reference for the journal and, if required, enter a description.

3. Enter the relevant information to record the disposal of the old asset and clear your depreciation, for example:

   Category*	Details	Debit	Credit	Include on VAT Return?
   Motor Vehicles – Cost (0050)	Disposal of old asset	0.00	6000.00	No
   Sale of Assets (4200)	Disposal of old asset	6000.00	0.00	No
   Motor Vehicles – Accumulated Depreciation (0051)	Disposal of old asset	4000.00	0.00	No
   Sale of Assets (4200)	Disposal of old asset	0.00	4000.00	No

4. Enter additional information to record the hire purchase, for example

   Category*	Details	Debit	Credit	Include on VAT Return?
   Motor Vehicles – Cost (0050)	Net value of new asset	10000.00	0.00	Yes
   VAT on Purchases (2201)	VAT on new vehicle	2000.00	0.00	Yes
   Motor Expenses (7300)	Document and option fee	75.00	0.00	No
   Licences (7301)	Road tax fee for new vehicle	150.00	0.00	No
   Current (1200)	Bank deposit paid	0.00	500.00	No
   Sale of Assets (4200)	Part exchange value	0.00	2500	No
   Hire purchase (2300)	Total purchase price less the deposit and part exchange	0.00	9225.00	No

When you record the payment, you'll need to separate the repayment and interest values. For example, if your monthly repayments are 300, where 250 of this is a repayment and 50 is interest.

There are a two ways you can do this.

1. Set up a recurring bank payment. If you're using bank feeds or importing from a bank statement, simply match the payment each period.
2. Create a new Other Payment transaction from your bank feed or bank statement import each month.

Whichever method you use, remember to split the transaction across separate ledger accounts for the loan repayment and the interest.

Your payment should like this for a repayment total of 300 with 50 interest.

• Amount Paid - the full amount of the repayment including the interest, for example, 300.00.

• Ledger Accounts - add the repayment and interest on separate item lines, for example:

  Category *	Details	VAT Rate	Total
  Hire purchase (2300)	Hire purchase repayment	No VAT	250.00
  Hire purchase interest (7901)	Hire purchase interest charged	No VAT	50.00

Set up a recurring bank payment

Create a new transaction from a bank feed or bank statement import