Purchasing fixed asset

To enter a fixed asset you purchased, firstly you need to create the fixed asset.

  1. Go to Fixed Assets tab.
  2. Click New Fixed Asset button.
  3. Enter details of the fixed asset.
  4. Click Create button.

Once you create the fixed asset, you will notice the purchase cost is zero. This is because under double-entry accounting you cannot simply enter the purchase cost without entering the actual purchase or payment transaction.

Purchase of the fixed asset can be recorded under following tabs:

  • Cash Accounts (if paid from cash in an account)
  • Expense Claims (if paid by you or someone else on behalf of the business)
  • Purchase Invoices (if purchased from a supplier on credit)
  • Journal Entries (if purchase was financed by a loan)

When recording the purchase of a fixed asset under any of these tabs, categorize the amount spent to the Fixed assets account, then select the fixed asset you have purchased.

If you purchased the fixed asset using finance (e.g. car loan), you should also create the liability account in your Chart of Accounts before you record the value of the loan.

Then record the journal entry as a debit to the Fixed assets account for the purchase price and a credit to the loan account by the same amount. Loan repayments must be allocated to the loan account.

1 Like

How do you treat the VAT element of a vehicle purchased by bank draft

The answer will depend on tax laws in your jurisdiction. In some locations, taxes paid as part of acquisition cost are capitalized along with the price of the asset itself. So, as an illustration, if the vehicle costs 20,000 and VAT of 2,000 is added to that, total cost of the asset would be entered as 22,000. The full 22,000 would then be depreciated over time.

In other locations, the tax might not be a depreciable capital cost and would have to be allocated to a current expense account. Or it might not be deductible at all. Check these rules with a local accountant.

Regardless, in the Cash Accounts tab, under either the Statement Balance or Pending Withdrawals columns, Spend Money. Allocate the depreciable portion of the total expense to Fixed Assets and the subaccount you created for the asset in advance. On a separate line, allocate any nondepreciable amount to a current expense account. The total of the lines should match the total of the bank draft.

If the VAT is included in the price of the asset (not added separately), you must first calculate what that amount is and subtract it from the price of the asset. Then you can allocate the various portions as described in the paragraph above.

Thank you, that answers my question completely.