P1 Hire Purchase with balloon payments

Used to calculate the current year interest expense and the current and term portions of the remaining Hire Purchase for recording in the balance sheet. This workpaper is particularly useful when a client has a simple Hire Purchase agreement. Where the client has made a lump sum payment during the term of the Hire Purchase consider using P2 Hire Purchase with extra payments.

Enter asset details (required)

These details are used to calculate the interest charge, current and term portions of the hire purchase. You can roll this information forward from prior year workpapers or to future period workpapers.

  • Description of asset: This will help you identify the asset in the accounts and in future years.
  • Finance company: The name of the financial institution that advanced the funds.
  • Date purchased: The date the hire purchase was entered into.
  • First year of HP: The balance date of the first year the hire purchase was entered into.
  • Payments in 1st yr: The number of payments required during the first year of the hire purchase.
  • Codes used: enter the account codes applicable to this hire purchase.
  • Amount financed: The amount financed to purchase the asset (net of any interest or finance charges).
  • Total interest: The total amount of interest as per the hire purchase agreement.
  • Finance rate: The interest rate as per the hire purchase agreement. If this is unknown, leave this cell blank.
  • Monthly payment: The amount payable under the hire purchase agreement each month.
  • No. of months: The total number of monthly payments required under the hire purchase agreement.
  • Balloon payment: The total lump sum payment(s) required at the end of the hire purchase.

Calculate current year interest

The interest per year should populate automatically in the interest calculations table, if this does not occur:

  1. Ensure all available information has been included in the Asset details table.
  2. If the error persists, try using P2 workpaper instead.

Reconcile Opening balance to unexpired finance charges

  1. Enter the opening balance of HP this financial year (opening general ledger balance).
  2. Enter details of any extra monthly or balloon payments made during the year under the less payments made section.
  3. Enter details of any payments due but not paid at balance date in gross amount owing at balance date section.
  4. Enter opening balance of unexpired finance charges (opening general ledger balance).

Create journal

Use the automatic journal function to transfer current portion for upcoming year from the term liability account.

  1. Indicate whether a current portion calculation is required in cell E52.
  2. Enter details of any additional payments to be made in the next 12 months in row 5.
  3. Enter account codes for current and term portions of Hire Purchase in cells J59 and J60.
  4. Create an automatic journal from the CCH Workpapers ribbon to transfer current portion for upcoming year from the term liability account. Select D1 or D3 journals depending on your preference.
  5. Create manual journal to account for interest component:

    • Dr interest (for current year interest)

    • Cr unexpired hire purchase charges/finance

See Create a journal automatically or Create a journal manually for further assistance.