P2 Hire Purchase with extra payments

Use this workpaper 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 where the client has made a lump sum payment during the term of the Hire Purchase. The goal seek function is utilised to calculate the interest component of the payments made.

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 co: The name of the financial institution that advanced the funds.
  • Date purchased: The date the hire purchase was entered into.
  • Payment frequency: Select monthly or weekly.
  • First payment date: The date the first payment was required.
  • Principal financed: The amount financed to purchase the asset (net of any interest or finance charges).
  • Finance rate: The interest rate as per the hire purchase agreement. If this is unknown, leave this cell blank.
  • Monthly / weekly payment: The amount payable under the hire purchase agreement each month or week (depending on payment frequency selected).
  • No. of months / weeks: The total number of monthly or weekly payments required under the hire purchase agreement.
  • Extra payment: The total amount of any extra payments to be made over and above standard monthly payments. E.g. if payment 3 is usually $1,400 but client is required to pay $10,000 – enter $8,600 in cell E26.

Enter extra payment details

  • Extra payments made during the term of the hire purchase need to be recorded in Column E in the payment summary table (rows 22+).
  • Enter the extra payment amount next to the appropriate payment date.
  • The extra payment amount is the total amount paid less the standard monthly payment amount required under the agreement.
  • The sum of this column should reflect the total extra payments recorded in cell H15.

Calculate current year interest

Once the all the asset details have been completed and extra payments have been recorded you can calculate the interest component for the annual accounts: to do this:

  1. Run the goal seek by selecting the goal seek button in row 14.
  2. If the calculated interest (cell J13) returns a #### value run the goal seek function again.
  3. In cell J18 enter the total of interest payable in column F for the payments made during the current year. For example, if the asset was purchased at the beginning of the financial year, enter formula “=sum(F24:F35)”.

Create journal

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

  1. Enter account codes for current and term portions of Hire Purchase in cells I19 and I20.
  2. Create an automatic journal from the CCH workpaper ribbon to transfer current portion for upcoming year from the term liability account. Select D1 or D3 journals depending on your preference.
  3. 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.