New asset, help required urgently !

System

I am really confused with this one. Our company usually gets 25% discount off goods of this supplier we use. However they have actually brought us a fixed asset for our company out of there own money and the agreement is that our discount will be reduced to 20 % until the discount has actually paid for the fixed asset.
I am unsure how I would account for this as I am not 100% sure whether we would actually own it until all the discount has actually paid for the asset.
Any help would be much appreciated!
Thanks

System

Re:New asset, help required urgently !

This should be treated in a similar way to how a fixed asset is purchased under a hire purchase contract. SSAP 21/IAS 17 gives the guidance here with reference to FRS 15/IAS 16.

If the risks and rewards of the asset ownership have been passed to you then you must capitalise it. This is the case with all finance leases other than "rentals". Substance over form issues are present here i.e. you must account for the asset's substance rather than its legal form.

You would bring the asset onto the balance sheet at its cost and create a corresponding creditor in current liabilities. The discounts on a periodic basis would be debited to the liability thus reducing it until such time it becomes fully paid. Any interest charges levied by your supplier would be credited to the liability and debited to interest in the income statement/profit and loss account.

Kind regards
Steve