HP Clarification

bigmuggsy

Hi

Just a quick one - if a vehicle on HP is given back to the lender half way through without any proceeds to my client how exactly is this treated in the accounts? I've suggested credit the asset/debit the depreciation to a disposal account and also debit the HP & credit the HP Interest suspense to the same disposal account, the difference being put to the capital account.

Any thoughts/help would be appreciated.

Cheers


Mike

Tiger

I'd of thought that the 'proceeds' on disposal would be the amount required to fully clear your clients liability to the lender on repossesion. Otherwise I'd treat it as any other disposal of asset likely their will be a loss to put to the P&L ... Just my opinion not come across one of these yet...

tripod333

If the car was bought for £20k repayable over 5 years and remaining liability was £10k then


You create a Disposal Account on profit and loss so:

Fixed Assets at cost CR £20k DR Disposal Account £20k
Being cleardown of Balance Sheet

Accum Dep. (Assumed 20% for 5 years straight line at 2 and half year point)
Accum. Depreciation DR £10k Disposal Account CR £10k
Being cleardown of Balance sheet

Loan Liability Outstanding DR £10k CR Disposal Account £10k
Being cancelling outstanding car finance liability as agreement has now ended.

Proceeds Nil

This procedure clears down the liability and depreciation accounts and cost account.

So the disposal account is now at DR £20k at cost
less CR £10k Cleardown Accumulated Depreciation
Less CR 10k cleardown of Liability of car finance.

Profit/Loss Disposal Account= Nil

bigmuggsy

Thanks very much for your help.

Mike