[Question] How to capture HP on Pastel

[Christel]

Hello - I see Lauren had the same question... I need to bring in the following by Journal:

Bakkie sold for full settlement amount that was due on current HP. Need to pay over VAT.
New bakkie (single cab) bought on HP. Need to claim VAT
Motorbike (farming) bought on HP. Need to claim VAT

I have the GL accounts: i.e. Installment sales / Vehicle @ Cost / Finance charges

Thanks.

[Neville Bailey]

Hi Christel,

With regard to the bakkie that you sold, you should ideally process a tax invoice to the buyer, and allocate the proceeds to a GL account named "Profit / Loss on Sale of Assets" in your income statement, using VAT code 05. Then process the following general journal (with no VAT code):

• Debit "Instalment Sales" with the settlement value
  Credit "Profit / Loss on Sale of Assets" with the settlement value
• Debit "Accumulated Depreciation - Motor Vehicles" with the accumulated value of the depreciation of the bakkie
  Credit "Profit / Loss on Sale of Assets" with the accumulated value of the depreciation of the bakkie
• Debit "Profit / Loss on Sale of Assets" with the original cost of the bakkie
  Credit "Motor Vehicles @ Cost" with the original cost of the bakkie

With regard to the new acquisitions, process a general journal as follows:

• The first line should credit "Instalment Sales" with the cost of the vehicle (and any VATable extras), using the VAT code 05 and debit "Motor Vehicles @ Cost" by using the contra amount column
• The second line should credit "Instalment Sales" with the documentation fees, using the VAT code 01 and debit "Bank Charges" by using the contra amount column
• The third line should credit "Instalment Sales" with any non-VATable charges (such as registration and licencing fees), using the VAT code 00 and debit "Motor Vehicles @ Cost" by using the contra amount column
• The fourth line should credit "Instalment Sales" with the total finance charges payable, using the VAT code 00 and debit "Finance Charges in Advance" in the balance sheet by using the contra amount column

[Christel]

Hello Neville,
Thank you so much... will try it out in the morning.

[Connie K]

Hi Neville

Brilliant - thanks. Just one more question if I may. How do I treat the monthly payments to the bank which have components of both capital and finance charge?

[Neville Bailey]

Hi Connie,

On a month to month basis, simply allocate the entire repayment to the installment sales creditor account.

At year end, obtain an amortization schedule from the finance house, for the year past, which will split the capital and interest portions of the installments.

Then process a journal to reallocate the interest portion to the income statement.

[Connie K]

I really appreciate your help - thanks Neville!

[Abigail]

Monthly payment split between capital and interest on Installment Sale agreements

Good day Neville,

Just one quick question on the VAT treatment in the monthly instalment payments, do you need to adjust the monthly payment with the vat allocation?

[Neville Bailey]

Hi Abigail,

If you claimed the VAT at the time of purchasing the asset, you cannot claim it again on the monthly instalments.

I am surprised that the monthly instalments have a VAT component - are you assuming that, or does the documentation from the finance house indicate that?

[Abigail]

Hi Neville,

The total amount payable is R201 571.20 of which a VAT amount of R17109.62 is included in the total amount payable.

We are going to claim the vat back on the purchase of the vehicles (car rental company). That is why I assume that the monthly instalments of R2799.60 (R201 571.20/72) should be reduced with the vat portion?

What exactly should the journal entries be?

Thank you
Abigail

[Neville Bailey]

Hi Abigail,

The initial acquisition (including the VAT) must be processed as per my earlier post in this thread.

The monthly instalments must be debited in full to the Instalment Sales account, thereby reducing the credit balance on that account. The monthly instalment does not have a VAT component, as it is effectively a loan repayment.

[Dave A]

What you do need to watch for in the monthly instalments is if there is a monthly admin fee or similar non-interest finance charge included - this will have VAT raised on it.

It'll show up as a separate line item in the vehicle finance statement if you're not sure whether you're getting hit with this one or not, but I think most banks are charging it nowadays.

[Raeesah]

Hi Neville

Thank you for your answer posted - i found it very helpful.
Question - would the Finance Charges in advance be a asset on BS.

Thank you