Hire Purchase Agreement Accounting Treatment

Step 4: Record a loss (or profit) when selling the old carrierThe “selling price” of the old vehicle is unlikely to match the residual value of the vehicle. (The residual value is the initial purchase price less the total depreciation amortized over the years). It is important to recognise the difference as a loss (or profit), as this affects the amount of income tax that will result from the company`s income tax at the end of the financial year. Suppose in this example that the initial purchase price of the old van was £12,000 and the total depreciation in previous years was £4,650. (This transaction is recorded for VAT purposes, so we use the purchase price excluding VAT). The residual value of the old van is therefore £7,350 and since we are selling the van for £5200 (excluding VAT), the loss on this sale is £2,150: Step 3: Assign credit to purchase If you make sure that the purchase credit you created in step 2 is selected, then click on File menu > New > assign the selected credit and check the purchase invoice, that you created in step 1. This reduces the amount due on the purchase invoice. You can find more information by assigning a credit to a purchase. Leases differ from the terms of the asset in that the lessee has no ownership rights in the asset. At the end of the lease, the lessee usually has the choice of renewing the lease, returning the asset, or introducing a buyer for the asset. Some tenants are entitled to a refund of 95% of the proceeds of the sale when they present a buyer.