We have purchased two vans one directly through a financial leasing company the other we purchased and then sold to the leasing company. How do I enter these into sage!
-- Edited by ce1 on Thursday 2nd of June 2011 08:01:27 AM
Was the van you purchased for cash? finance/HP lease? or operating lease?
Basically the first two means you keep the van and therefore you would include as an asset. The operating lease means effectively you are hiring the van and therefore costs are expensed.
To remove the sale of van you would credit the account where the asset is included, remove any accumulated depn with the net difference shown as a gain/loss depending if sold for more or less than the net book value.
Both vans are ours being used on a dailty basis, so they are an asset but how would I key through the purchases or the lease payments in my sage program.
not sure that you understood what Mark was getting at in his post.
The treatment of leases is completely different dependant upon the type of lease.
For example, one of the transactions seems to be a sale and leaseback. Unless the reality of that transaction is actually an operating lease then basically it is a secured loan. The asset would continue to be recognised in the books at its original depreciated cost. Not the cost that the finance company paid for it. But the company then has a liability to be recorded for the loan.
Sure that you appreciate that there are a lot of variables that need to be considered when it comes to classification and recording of assets in order for the financial statements to give a meaningful reflection of the companies affairs.
Worth noting is that how you use the assets is to a certain extent immaterial here. What matters is the substance of the transactions. To recognise a leased item as an asset then substantially all of the risk and reward of ownership must lie with the lessee.
For a van this is very likely to be the case as at the end of the lease term it will be basically worthless (or at least not worth the leasing company leasing it to anyone else) so the company will have used up substantially all of the risks and rewards of ownership. This is not the only test but for simplicity we'll just keep with that one.
I'm no Sage wiz so I'll leave the explanation as to how to record a finance lease through Sage to others but this note was just intended to clarify what Mark was getting at.
For the Sale and Leaseback don't forget that the carrying amount of the asset will be the original cost less depreciation, not what the finance company paid for it. Unless it can be shown that this is an operating lease then the money received from the finance company under a finance lease for the leaseback is a loan, not an asset.
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Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
Will add some figures to the scenario to explain the postings
1. Bought Van for £5000 and paying £120 over 4 years or £5760 (assuming finance lease/hire purchase rather than operating lease)
Dr Fixed Asset £5000
Cr Loan £5000
each month reduce the loan by £104.17 being the capital element of the £120 payment (so the loan is £nil after 4 years). The balance of £15.83 would be expensed to P&L as loan interest each month. (so you write of £760 to the P&L over the 4 years). You would off course depreciate the van over its useful life. Probably over 4 years straight line would make sense to tie in with the lease period.
2. Bought Van for £5000 and sold to leasing company for £4800 (assumed bought and sold in same year and no depreciation charged)
Dr Fixed Asset £5000
Cr Bank/Loan £5000
Being purchase
Dr Gain/Loss on Disp £5000
Cr Fixed Asset £5000
Dr Bank £4800
Cr Gain/Loss on Disp £4800
This journal to recognise sale of van and remove from the accounts. End result is you have £4800 in your bank and a loss on disp to expense to P&L of £200 as you bought the van for £5k but sold for £4800.
The sale and leaseback would not affect the underlying asset which would continue to be recognised at historic cost less depreciation. Not derecognised and then re-recognised at a lower value.
The leaseback in this instance is in substance actually a loan so doesn't touch on the asset which never ceases to be recognised in its original form.
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Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
probably where our confussion arises as I'm reading that second one slightly differently.
I was going on this line : "the other we purchased and then sold to the leasing company"
Which to me sounds as though for a while they owned the vehicle and then sold it to the leasing company in order to raise finance against it.
Often that's done to try and take assets off the balance sheet as operating leases but in this instance there is realistation by ce1 that the assets still belong to the company so the recognition is at least as a finance lease.
Unfortunately a lot of people that go down this path don't realise the actual substance of the transaction is that all they have really done is taken out a loan against the companies assets so the asset never actually leaves the books. Well, not until it reaches the end of it useful economic life anyway.
For anyone else reading this thread the reason that this is so important is that if the assets can be taken off balance sheet via an operating lease then several of the major ratio's cease to give a true and fair view of the entities financial position.
The ratios that I'm thinking about here are :
Return on Capital Employed which would decrease where additional assets exist on the balance sheet under a fiance lease
Earnings per share will indirectly decrease due to additional depreciation from the additional assets
Gearing increases because of additional liabilities (the obligation to pay future lease payments on the assets held under finance leases).
So, if the assets were taken off the balance sheet then the companies position would look better than it really was. For finance leases where an asset is subject to a sale and leaseback the asset has to remain on the balance sheet carried at it's original value to prevent manipulation of the financial statements.
Only where it can be shown that the substance of the sale and leaseback is genuinely an operating lease should the asset be removed.
From the limited information that we have here my belief is that the second van is a sale and leaseback under a finance lease so the asset should remain as it was prior to the arrangement and a liability recognised for the loan taken out.
Of course, I could be totally wrong as we are going on very little information here and the the reality of the situation may be quite different to how I am reading it.
poor old ce1 only wanted to know how to put this into Sage and it's turned into a fundamental discussion about leases. Good for the site but probably doesn't help ce1 that much!
anyway, I'm supposed to be reading IAS19 (employee benefits) at the moment so enough of this fun discussion and back to defined contribution as opposed to defined benefit contribution pensions for me... Sure I'm supposed to fit sleep in here somewhere as well!
all the best Mark, talk later,
Shaun.
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Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
