Hi, I'm sorry to keep posting about HP journals....I just can't do them EVER!! or understand them. ( I wish there was someway I could learn to work the bloody things out but it seems to take me hours and days sometimes)
If anyone could help I would be very grateful!!
This car was bought in September 2013 and I am now doing the accounts for the year ending 5th April 2016. This guy had another accountant before and he has email me over the accounts and a copy of the credit agreement this morning. I don't know if I am again being an idiot or there is something missing.
I think the total cost including interest is £14,829.55 because this is what the payments add up to. At the beginning of the tax year 6th April 2014 - 5th April 2016 the accountant has an opening balance of £10,692.85 I don't get this figure at all. I think it should be £12907.58 or £10,178.03 (either 14,829.55 or £12,100 less payments 1 x £381.71 and 6 x 256.71= 1921.97)
This is what I have been sent:
New vehicle order form
New vehicle net
11665.71
VAT
2213.54
registration fee
55.00
Total price
13934.25
Less: part exchange
-8000.00
Balance outstanding (HP or other)
7265.76
Sub total
13200.01
Less: manufacturers deposit
-500.00
Cash deposit
-600.00
Finance
12100.01
Payments
03.10.13
381.71
03.11.13 35 x payments of £256.71
8984.85
03.10.16 1 final payment
5462.99
14829.55
difference
-2729.54
is this the interest?
Accounts notes
Opening balance
10692.85
repayments (256.71 x 12)
3080.52
Interest HP charges
668.16
closing balance
8280.49
11361.01
11361.01
Less than 1 year
2412.36
More than 1 year
5868.13
1. I don't understand how much the interest is
2. I don't understand why the balance is split in 2 - is one the remaining interest and one the remaining capital
3. Do I post the payments in the capital balance amount? (if that is what it is)
4. What would be the journal from here to account for the interest? DR Expenses HP Interest .....I can't credit the creditors- interest account as it would make the amount higher??
I hope I have been clear and again I am sorry to ask about this again, I just can't get my head around it. Any help would be gratefully received.
HP is complicated but I hope I can help. Standard practice is to only account for the capital in the balance sheet and post the interest/charges as and when expended.
The £2729.54 is interest and charges. The initial payment appears to be £256.71 + £125 admin/acceptance fee which leaves a total interest charge of £2604.54 which works out at £72.35 per month (£868.18 pa). As the interest in your example is £200 less than my calculation I can only assume that the very large final payment is loaded with interest too. Normally the final payment is a little higher than the monthly instalments because it includes an option to purchase fee, but this is rarely more than £50
Interest is included in the monthly payments so more is being paid than is coming off the capital balance. The interest element should be journalled as Dr HP Interest and Cr HP creditor to bring the balance back to capital element only.
The balance is split because it is standard practice to allocate creditors as being due within 1 year, within 5 years and over 5 years for longer term loans.
