Could someone explain the actuarial method to me for loans

Cordie

Hi

My client has taken out loans on 4 pieces of machinery (ie 4 sperate loans), I now have to enter these into the accounts system and am not sure how to do it correctly.

Firstly I assume a purchase invoice is entered then payment showed as been made from the loan account. But I then have to calculate a loan table to work out the interest payable each month. The documentation gives me the monthly repayments which I assume include interest but none of them give me an interest rate. The previous accountant put together a sum of digits calculation for a car, but I think I read on the HMRC site they prefer the actuarial method, I think I am just getting more confused, what is the best and correct way to work out what element of the repayment is interest?

peugeot

I answered a thread similar to this on the technician forum, that might help you:

http://www.aat.org.uk/forums/showthread.php?t=17292

If you're not given the interest rate implicit in the lease a quick way to work it out is to work out exactly how much has been repaid, take this off the balance financed and the difference is the interest.

Kind regards
Steve