Purchase of an asset including Hire Purchase

Create the new nominal codes

Before recording the HP agreement, ensure you’ve created the required nominal codes. If using the Sage default nominal ledger structure, we suggest using the following codes:

Nominal Code	Name	Management Report	Section of Management Report
0050	Motor Vehicles	Balance Sheet	Fixed Assets
2201	Purchase Tax Control	Balance Sheet	Current Liabilities
2310	Hire Purchase	Balance Sheet	Current Liabilities
1200	Bank Account	Balance Sheet	Current Assets / Liabilities
7302	Licences	Profit and Loss	Overheads
7304	Misc Motor Expenses	Profit and Loss	Overheads
7700*	Equipment hire and rental	Profit and Loss	Overheads
7904	Hire Purchase Interest	Profit and Loss	Overheads

*You use this nominal code for lease hire only.

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Create a nominal code

1. Click Nominal codes then click the New/edit drop-down and click New.
2. Complete the record as required.
3. Click Save then click Close.

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Record the HP transactions

Record HP transactions by posting a journal. This updates the relevant nominal codes and where relevant, the VAT Return. The journals posted depend on whether you used part exchange.

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Post the HP transactions without part exchange

Example

• A company buys a new car for £12,225 including VAT
• This figure also includes documentation fees of £50.00, an option fee of £25.00 and Road Tax of £150.00
• A deposit of £500.00 was paid
• The interest is £2,400, paid over four years

Post the following journal

NOTE: When you make the monthly repayments, the interest is accounted for.

N/C	Name	Dept	Details	T/C	Debit	Credit
0050	Motor Vehicles	Department	Net value of new asset	T1	10000.00	0.00
0050 or 2201 - see note below	Motor Vehicles	Department	VAT on new vehicle	T1	2000.00	0.00
If you can reclaim the VAT, post the VAT on the new vehicle as a debit to the Purchase Tax Control Account (default 2201) instead of the asset nominal code (0050).  NOTE: In some lease, hire agreements you can only reclaim 50% of the full VAT value. If so, journal the non recoverable VAT from the Purchase Tax Control Account to 7700 - Equipment hire and rental.
7302	Licences	Department	Road tax fee for new vehicle	T9	150.00	0.00
7304	Misc Motor Expenses	Department	Document and option fee	T9	75.00	0.00
This part of the journal records the road tax and administration fees.
1200	Bank Account	Department	Deposit paid from bank	T9	0.00	500.00
2310	Hire Purchase	Department	Full purchase price for new vehicle	T9	0.00	12225.00
2310	Hire Purchase	Department	Reduced HP Liability with deposit paid	T9	500.00	0.00
NOTE: This part of the journal records the deposit and the outstanding liability on the HP account. If you don't involve HP or a loan, remove the entries for Hire Purchase (2310) and credit the full purchase value against the bank account (1200).

Post the journal

1. Click Nominal codes then click Journal entry.
2. Complete the Journal Entry window as required.
3. Click Save.

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Post the HP transactions, including part exchange

Example

• A company buys a new car for £8,458.83 including VAT
• This figure also includes documentation fees of £50.00, an option fee of £25.00 and Road Tax of £150.00
• Paying a deposit of £500.00, along with a part exchange worth £1,300.00 for an old vehicle
• The interest is £2,400, paid over four years
• The vehicle being part exchanged originally cost £4000, but depreciated £3,000 since then

Post the following journal

NOTE: You automatically account for the interest with each monthly repayment.

N/C	Name	Dept	Details	T/C	Debit	Credit
0050	Motor Vehicles	Department	Disposal of old Asset	T9	0.00	4000.00
4200	Sales of Assets	Department	Disposal of old Asset	T9	4000.00	0.00
This part of the journal moves the value of the asset being part exchanged from the fixed asset code to the Sales of Assets code.
0051	Asset Depreciation	Department	Value of Depreciation	T9	3000.00	0.00
4200	Sales of Assets	Department	Value of Depreciation	T9	0.00	3000.00
This part of the journal moves the value of the depreciation to date from the depreciation nominal code to the Sales of Assets nominal code.
0050	Motor Vehicles	Department	Net value of new asset	T1	6861.53	0.00
0050	Motor Vehicles	Department	VAT on new vehicle	T1	1372.31	0.00
Post the 'VAT on new vehicle' as a debit to the Purchase Tax Control Account nominal code, if the VAT is reclaimable,
7302	Licences	Department	Road tax fee for new vehicle	T9	150.00	0.00
7304	Misc Motor Expenses	Department	Document and option fee	T9	75.00	0.00
This part of the journal records the road tax and administration fees.
1200	Bank Account	Department	Deposit paid from bank	T9	0.00	500.00
4200	Sales of Assets	Department	Part exchange value	T9	0.00	1300.00
2310	Hire Purchase	Department	Balance outstanding on the HP agreement	T9	0.00	6658.84
This part of the journal records the deposit, the part exchange and the outstanding liability on the HP account. If there's no HP or loan involved, remove the entry for the Hire Purchase, and add the value to the Bank Account.

Post the journal

1. Click Nominal codes then click Journal entry.
2. Complete the Journal Entry window as required.
3. Click Save.

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Post the monthly repayments

Each time you pay the HP and interest repayments, post a bank payment to reflect this. Two amounts make up each monthly repayment:

• Repayment of HP - Post to 2310, Hire Purchase Account, with T9 tax code
• Payment of HP interest - Post to 7904, Hire Purchase Interest, with T9 tax code

TIP: It's possible to set these repayments as recurring entries.

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Post a bank payment

1. Click Bank accounts then click the Payments drop-down and click Bank payment.
2. Enter the relevant information into the Bank Payments window, for example:
   

   Bank	Date	Ref	N/C	Dept	Details	Net	T/C	Tax
   1200	Due Date	Ref	2310	Department	Hire purchase repayment	244.27	T9	0.00
   1200	Due Date	Ref	7904	Department	Interest repayment	50	T9	0.00

3. Click Save then click Close.