Record a hire purchase

When you agree to a hire purchase agreement you can claim GST on an item before it’s fully paid.

Updated over a week ago

Watch this video or read this resource to learn how to manage a hire purchase in Farm Focus

So that the information is entered correctly, locate the Hire Purchase (HP) agreement or invoice and make a note of the following:

  • What is the purchase price of the item?

  • Is there a deposit and if so, how much?

  • Is there a trade in and if so, what is the value?

  • What is the amount remaining to pay?

We strongly advise you to talk with your accountant about the best practice for managing hire purchases. This is generic information.

Below are two of the most common types of HP entries.

A. 100% financed

Scenario:

  • Adam has purchased a new Honda TRX420 for $13,794.25 inc GST and traded a Honda TRX500 for $5,000.00  inc GST

  • He didn't pay a deposit which means there is $8,794.25 to finance.

  1. Create a Money out Invoice.

  2. The date, other party and reference reflect corresponding information on the HP agreement/invoice. The A/C (bank account) will be the same account that future HP payments will be made from.

  3. Leave the amount as ($0.00) as no money has moved through the bank account.

  4. Code the new asset on the first line of the invoice as an expense. Code the line to ASSET:V (Asset Purch or Sold : Vehicle).  Then click Add new line.

  5. Use the second line to code trade-in details (if any) as income.  Code the line to ASSET:V (Asset Purch or Sold : Vehicle).  Then click Add new line.

  6. The final line indicates the amount remaining to pay on the HP. Code to LP:HP (Loan Repayment : Hire Purchase), as income.

  7. Once the Invoice has balanced back to $0.00, click Save.

    TIP: Check whether the invoice is GST exclusive or inclusive and make sure the record in Farm Focus matches it.

B. When a deposit has been paid

Scenario:

  • Adam purchased a new Honda TRX420 for $13,794.25 inc GST and traded a Honda TRX500 for $5,000.00 inc GST.

  • He paid a deposit of $3,500.00 which means there is $5294.25 to finance.

  1. Create a Money out Invoice.

  2. The date, other party and reference reflect corresponding information on the HP agreement/invoice. The A/C (bank account) will be the same account that future HP payments will be made from.

  3. The header amount is the deposit paid.

  4. Code the new asset on the first line of the invoice as an expense. Code the line to ASSET: V (Asset Purch or Sold: Vehicle). Then click Add new line.

  5. Use the second line to code trade-in details (if any) as income. Code the line to ASSET: V (Asset Purch or Sold: Vehicle). Then click Add new line.

  6. The final line indicates the amount remaining to pay on the HP. Code to LR: HP (Loan Repayment: Hire Purchase), as income.

  7. Click Save.

    Future HP Payments

    Code each payment to LR: HP (Loan Repayment: Hire Purchase). This is exempt from GST. Remember, the GST claim has already been claimed so you can not claim it again.

Tips and Tricks

  • Attach a copy of the relevant HP agreement.

  • For machinery, include a clear note of the trade-in i.e. the model and serial number.
    This will make it easier for your accountant to reconcile it in the end-of-year accounts.

  • Add the new asset to the Asset Register and remove the old one.

  • Create a repeating Money out invoice for future HP payments.

Troubleshooting

  • Why is the remaining HP/Finance amount displayed as income?
    Think of the HP as a loan.  The remaining amount needs to be displayed as income because it is similar to introduced funds or a drawdown of a loan.  It appears as income to be used against the purchase.
    As the payments are made, the amount owing on the item will decrease, similar to a loan repayment.



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