Hire Purchase Agreement

Transcription

1 Hire Purchase Agreement What is a Hire Purchase Agreement? A hire purchase agreement is where the customer hires the vehicle from the financier for a fixed monthly repayment over a set period of time. As from 1 st July 2012, under a hire purchase agreement GST is payable on the purchase price of the vehicle and also on all term charges and any fees. Businesses using either the Cash or Accrual GST basis can claim the GST paid on the vehicle up-front and GST on the interest and fees. This is a major difference for hire purchase, because prior to 1 st July 2012, a business on GST Cash basis could only claim GST on each instalment on the price of the vehicle, whereas now GST is claimable up-front. GST applies to the purchase of the vehicle, term charges and administration fees. See below an example of the differences. Diagram from Stratton Finance The Institute of Certified Bookkeepers Page 1

2 Hire Purchase Process The supplier invoice: The Finance Company schedule: To Check the Repayments If you are interested to see how the interest is calculated, search the web for Amortisation Schedule and check the calculation of the payments. The Institute of Certified Bookkeepers Page 2

3 Setup and Process Accounts required for Hire Purchase Process Reason Account Type Tax New Car Motor Vehicles At Costs Asset CAP-Capital Acquisition Registration and Insurance Motor Vehicle Expenses Expense GST/FRE/No Tax HP Financier Liability Chattel Mortgage Liability No Tax HP Interest Charges Loan HP Interest Charges Expense GST Entering the Purchase of the Hire Purchase Goods, in this example a Car 1. Deposit before purchase Allocated to Asset: Supplier Deposits 2. Purchase of Car Journal MV At Cost Purchase Car Asset DR $39, CAP GST Paid GST on Car Liability DR $3, MV At Cost Stamp Duty Asset DR $ No Tax MV Expenses Registration Expense DR $ FRE MV Expenses Insurance Expense DR $ GST GST Paid GST on Insurance Liability DR $29.55 MV Expenses Stamp Duty Expense DR $30.00 No Tax Hire Purchase Hire Purchase Financier Liability CR ($42,463.00) No Tax Deposits on Suppliers Initial Deposit Asset CR ($3,000.00) No Tax 3. A purchase and payment or a Journal Entry could have also been used. 4. Borrowing Costs are amortised over the life of the loan or 5 years for tax. ICB recommends expensing them immediately and allow the accountant to make any necessary tax adjustments at end of year. The Institute of Certified Bookkeepers Page 3

4 Making the Repayments Option #1 1. Monthly payments. Monthly Payment amount: $ Number of Payments: 48 See Finance Company schedule listed above. The first monthly payment will be recorded like this Hire Purchase Int Interest on HP Expense DR $ GST Principal Principal portion Liability DR $ No Tax GST Paid Liability DR $28.00 No Tax OR (if unaware of principal/interest split Include GST in whole of payment Principal Principal and Interest Liability DR $ GST GST Paid Liability DR $80.67 No Tax 2. Save this transaction as a Recurring or Memorised Transaction 3. NOTE: If you don t have the breakdown of the interest as per the above example, do not make it up. The accountant will work out the interest charges at end of year and apply them. If you only have the repayment amount (in above example, $887.43), do not enter amounts for unexpired term charges OR term charges, simply post the entire amount to the Finance Company liability account. Option #2 Optional and not necessary but some prefer show the total value of Interest for the term of the Hire Purchase on the Balance Sheet using Unexpired Term Charges to show Interest paid thus far 1. Additional Accounts required. Add directly under the Hire Purchase Liability Account Reason Account Type Tax Hire Purchase Financier Liability Hire Purchase Liability No Tax Unexpired Interest Less: Unexpired Interest Liability No Tax Bring in Borrowing Costs Borrowing Costs on HP Liability No Tax 2. Create a Journal Entry to bring in the Interest Charges against the Hire Purchase Company and claim entire GST in interest up front (regardless is Cash or Accrual) The Institute of Certified Bookkeepers Page 4

5 Borrowing Costs Establishment Fee Expense DR $ GST Borrowing Costs Registration Fee Expense DR $7.36 GST GST Paid GST on Est Fee and Reg Liability DR $33.01 No Tax Borrowing Costs Stamp Duty on Loan Expense DR $ No Tax Hire Purchase Interest and Borrowing Costs Liability CR ($10,133.64) No Tax Unexpired Interest Less Unexpired Int Liability DR $8, GST GST Paid Liability DR $ No Tax 3. Monthly payments. Monthly Payment amount: $ Number of Payments: 48 See Finance Company schedule listed above. The first monthly payment will be recorded like this HP Interest Interest on HP Expense DR $ No Tax Unexpired Interest Liability Unexpired Interest Liability CR ($887.43) No Tax Hire Purchase Principal on HP Liability DR $ No Tax 4. Save this transaction as a Recurring or Memorised Transaction References: ATO Hire Purchase ATO Motor Vehicles and GST The Institute of Certified Bookkeepers Page 5