Hire agreements

[Alex]

Hi David

Thanks for the quick and comprehensive reply.

Your solution has done the business and the balance sheet now shows the 
information that I need to report back on.

Thanks again.

Alex



On 05/01/16 11:23, David Cousens wrote:
> Hi Alex
>
> If you treat the printer as an asset, you would have to writeoff the 
> printer as a depreciation of its initial value over the period of the 
> agreement and you would record the start of the hire agreement as
>
> Asset:Printer:InitialValue                      debit  £26,022.20
> Liability:Printer Hire Agreement                      credit £26,022.20
>
> Each quarterly payment would be recorded as
>
> Liability:Printer Hire Agreement   debit  £1,301.11
> Asset Checking Account                                credit £1,301.11
>
> To record the printer depreciation you have to set up an asset contra 
> account, i.e. an account whose balance is subtracted from the Asset: 
> Printer account. This can be done with a Parent Account 
> Asset:Printer:CurrentValue  which has as child accounts both
> Asset:Printer:InitialValue and Asset:Printer:Depreciation. When you 
> make each quarterly payment you would then also record the asset 
> depreciation as follows.
>
> Asset:Printer:Depreciation                           credit £1,301.11
> Expense:Printer               debit  £1,301.11.
>
> The accumulated balance of the Asset:Printer:Depreciation is 
> subtracted from the InitialValue account to give the balance of the 
> CurrentValue account which records its decreasing value. This is a bit 
> complex but will give you a complete record of the initial purchase, 
> record the original value of the asset and its depreciated value 
> reaching 0 at the end of the hire period.
>
> You may need to check your taxation law in the UK on such hire 
> agreements as there can be limitations on what can be written off and 
> when in the taxation legislation which are jurisdiction dependent.
>
> Pays to check it out with an accountant when you prepare your tax 
> return. Again the procedure would be the same but the amounts  of the 
> depreciation and Expense splits may vary and you may have to deal with 
> a residual book value at the end of the term normally with a write off 
> of an residual value similar to the above transaction. As the hire 
> company buys the printer back at 0 value, the above treatment is most 
> likely to be applicable.
>
> Cheers
>
> David Cousens
>
> On 01/05/2016 08:26 AM, Alex wrote:
>> My company has got a hire agreement for a print machine. At the end of
>> the hire agreement the machine has to be returned to the supplier so is
>> of no value to us.
>>
>> There are 20 equal quarterly payments to be made of £1,301.11, which to
>> me suggests at the start of the agreement we have a liability of
>> £26,022.20.
>>
>> I think I would like to show the quarterly payment -
>>
>> 1. reducing the liability;
>> 2. reducing the checking account;
>> 3. increasing the expense account;
>>
>> Is this the correct way to account for these agreements?
>> If so how would I go about it.
>>
>> Alex
>>
>