Finance Lease of Asset
THERE ARE A NUMBER OF DIFFERENT METHODS OF PAYING FOR AN ASSET PURCHASED:
- OUT OF THE COMPANY FUNDS HELD AT BANK
- BANK LOAN DRAW DOWN
- FINANCE LEASE
- HIRE PURCHASE
Assets can be financed through a finance company by either a Finance Lease or Hire Purchase. The two main differences between both methods of finance are:
1. VAT
Leasing
The finance company itself claims back the total vat at the time of financing the asset, as opposed to the client. The leasing company then charges vat on each monthly repayment the client makes which the client claims back from Revenue each month.
Hire Purchase
The client claims back the vat element in full directly from Revenue in their next vat return after purchase. In turn there is no vat charge on each monthly hire purchase repayment.
2. CAPITAL ALLOWANCES
The capital allowances allowed in the calculation of the year end tax return are capped for assets financed via Hire Purchase agreements.
ASSETS PAID THROUGH LEASING FINANCE
If the Asset is financed, then the finance company is paying for the asset and you are repaying the finance company periodically. **Do not post a Purchase Invoice**
To record the finance extended by the Finance Company, and the purchase of the Asset, you must post a journal entry to record the asset within the accounts and the amount of Finance extended by the Finance Company to you.
RECORD THE FINANCE EXTENDED BY THE FINANCE COMPANY
Accounts Production> Journals> Ordinary Journals>
Reference
It is advisable to give the journal entry an appropriate reference.
Date
Enter the Date of the Finance Agreement / Date Finance effective
Comment
Description of the Asset & Finance Agreement, e.g. description of asset & lease agreement number
Asset Account
Choose the appropriate Asset account from the listing and DEBIT it with the NET cost (i.e. excluding VAT) of the asset purchased.
Finance Account
Choose the appropriate Finance Account from the listing and CREDIT it with the Finance Amount extended.
Post Entry
Click "Post Entry" to save the transaction entry.
The Finance Accounts which are available to choose from are:
Leasing Finance – Cars
Leasing Finance – Vans
Leasing Finance – Trucks
Leasing Finance – Equipment
Leasing Finance – Other
PERIODICAL LEASE REPAYMENTS
To subsequently record each periodical payment to the Finance Company:
BANK> PAYMENTS>
Payments from
Select the bank account from the drop down list from which the payment was made (bottom right hand corner of entry screen). It is important that you ensure you are working from the correct bank account at the start.
Reference
In this case it is the Direct Debit reference, e.g. DD
Date
Date of Direct Debit
Supplier/Payee
Select a Payee from the existing list (F2) or type the first letter of the Payee name, use arrow down key to scroll through the existing Payee names.
To setup a new Payee simply type the new Payee name. The program will recognise the new name does not already exist and prompt you to specify if it is a new “Supplier” or “Other”, select “Other” to add the new name to the Payee list.
It would be advisable to set up the Payee in the name of the Finance provider with the Finance Lease Agreement number. This Payee will then be selected for all future lease repayments.
Nominal Account
Choose the appropriate Lease Account:
Leasing Finance – Cars
Leasing Finance – Vans
Leasing Finance – Trucks
Leasing Finance – Equipment
Leasing Finance – Other
Amount
Enter the total amount of the periodical repayment.
VAT
While in the amount box choose the appropriate VAT rate using the arrow up & down keys on the keyboard.
