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Accounting Treatment of an HP Agreement

DawnyDawny Settling In NicelyMAAT, AAT Licensed Accountant Posts: 60
My client is leasing a car through his company. The agreement is a 36 month agreement with the option to purchase the car at the end for a figure roughly the market value, so I believe this is classed as an operating lease.

Could someone please confirm the accounting treatment to this. Should the rental cost (capital and interest) be debited to the Profit and Loss each month, and not capitalised in the balance sheet. Alternatively, should the loan be reflected in the Balance Sheet, to be reduced with each payment, and only the interest debited to the Profit and Loss.

Thank you.

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