Another Asset Example – How to enter assets in the books

Client wrote – my partner runs his own business and just recently purchased a van for the business.
My problem starts with how to enter assets in the books as he used his old car as trade in for part payment, but this car was not owned by the business.
So he paid $24,000 for the van
Less trade in of $14,000
Got finance for $10,000
Plus interest charges of $3000
I have tried working out what to do but as I am only new to all this it has started to do my head in.

Answer – I assume the $24k includes GST. I would suggest as follows (but depends on the facts re interest, loan repayments and GST etc)
Dr Vehicles (Fixed Assets) 21818.18 with GST code to raise GST Paid 2181.82
Cr Loan Company Name (long term liability) 13000.00
Dr Unexpired Int (will be negative long term liability) 3000.00
Cr Owners Equity 14000.00
The Loan Company Name and the negative liability Unexpired Int gives a net loan of $10k, which is all that is owing at present.
As repayments $xxx are made:
Dr Loan Company Name xxx
Cr Bank Account xxx
At end of each year, calculate and expense annual interest (or just let the accountant do it)
Dr Interest Expense xxx
Cr Unexpired Interest xxx
At the end of the loan the Loan Company Name and Unexpired Interest accounts will both be nil. But for the first year only some will have reduced it, as the total interest will cover several years.

Did the van cost include Rego and Stamp Duty? GST may not calculate correctly as per the loan statement, because in the software GST is calculated as 1/11th of the GST inclusive purchase price. Usually because of rego, stamp duty or insurance, GST is not 1/11th. One way to deal with this is to enter 2 amounts for the vehicle. Note however that rego and/ or insurance should not be included in the Fixed Asset amt and should be expensed instead.
Say rego was $300 (inc $25 GST), stamp duty was $700 (no GST) and $23000 was for the vehicle (inc $2090.90 GST). Then $300 (inc GST of $25) should be expensed as registration costs, $700 as Stamp Duty/Motor Vehicle costs (no GST) and $23000 (inc $2090.91 GST) as a Fixed Asset.

For another “How to enter assets in the books” see HERE