Ok so I’m trying to record a car purchase but I’m a bit unsure and could use a second opinion to make sure I do this right. Scenario:
Purchase Price: $27,500.00
Down Payment: $2,750.00
Stamp Duty $45.00
Finance Fee $350.00
Dealer Fee $750.00
Loan Amount $25,895.00
Contract Rate (APR): 4.78%
Monthly Payment Amount: 48 x $565.28
Total of Payments: $27,133.44
Total Purchase Cost: $29,883.44
So I’ve read the guides and googled a bit then created a fixed asset for the car, a liability account for the loan and an asset account for the loan interest. Next I created a journal entry with the following lines:
Have I set this up correctly?
Thanks in advance! Oh and super program by the way!
What do you want to do with ? Have assumed
Stamp Duty - Capitalise
Finance Fee - Expense
Dealer Fee - Capitalise
Car Purchase - Spend Money will = 2,750.00
Account allocations are :
Fixed Asset - Car = 28,295.00 (24750+45+750)
Bank Charges = 350.00
Loan Acct = -25,895.00 (note minus)
BS Asset - Finance Interest = 1,238.44
Loan Acct = -1,238.44 (note Minus)
Monthly payments - Spend Money will = 565.28
Account allocations are :
Loan Acct = 565.28
Finance Interest = -25.80 (note minus)
P&L Interest Expense 25.80
You capitalise the loan interest then reallocate on a monthly basis to P&L
Final repayment interest will be 25.84
With regards to the GST - follow the Dealer’s Invoice. you may need to enter the Fixed Asset - Car as separate line items to cater for GST and non-GST items
Hi Brucanna and thank you for your response. I was just editing my question when you replied!
I’m a bit of a newbie here so I’m not sure when to expense vs capitalise but will assume that what you suggested is the best course of action. Does the following initial journal entry look right to you?
I’ve only allocated GST to purchase price and deposit. Is that correct?
As an aside any idea what’s up with the weird rounding issue?
The basic entry looks good - except - that you should be doing a Spend Money not a Journal.
To do the Spend Money delete the MV Expenses/Deposit line as that equals the payment value.
Also your Car Loan Interest entries are currently cancelling themselves out.
The “Debit” Car Loan Interest should be going to a BS Asset Acct called Finance Interest Unpaid
The “Credit” Car Loan Interest should be going to Car Loan so the loan account totals 27,133.44
What does the dealers invoice say ? Is the Dealer Charge GST Free ?
No idea about the rounding but as the Journal is going to be deleted it doesn’t matter
Also, w.r.t the monthly payments, does this look correct?
And I’m not clear on what you mean by “You capitalise the loan interest then reallocate on a monthly basis to P&L”
Really appreciate the help Brucanna! It’s getting late here so I’ll go through your answer in the morning when my head is clearer
Once again it should be a Spend Money not a Journal and the top two lines are in reverse.
To do the Spend Money delete the MV Expenses line and the Car Loan figure should be a Debit.
For the Interest - Debit P&L Interest Paid and Credit BS Asset Finance Interest Unpaid.
The loan at purchase is 25,895, the total loan including interest is 27,133.44.Therefore, to be able to show the total liability of the loan in the accounts the future interest payments are capitalise (brought to account today) and then reallocated to the P&L over the life of the loan
Ok so I think I understand this now. I’ve created the following spend money for the purchase:
And this spend money for a loan repayment:
Does this look right to you?
From the tax invoice, only the purchase price of $27500 is included. The other charges are listed on the Chattel MortGage Settlement document and have no mention of GST. Can I assume there is no GST for them or do I need to get clarification from the dealer?
The entries look good.
Yes check with dealer - the amount is possibly tax inclusive and the GST aspect isn’t relevant to the finance company
Your tax invoice should detail all the items that the dealer is getting paid for as that is the basis of the finance application. Otherwise the invoices received by you and the finance company for the same purchase are different and they shouldn’t be.
Which raises another question - is that Stamp Duty related to the purchase or the finance ?
If the tax invoice supplied by the dealer to you (in the purchasers name) doesn’t disclose any additional charges then where is there any obligation upon you or the finance company to pay them.
As the applicant for the finance, your tax invoice substantiates your application and a dealer shouldn’t be inserting additional charges between your tax invoice and the finance approval.
If the dealer is the one introducing/providing the finance there needs to be even greater transparency of all charges involved so all are equally informed.
Yes I’m a little concerned about the fact that the extra charges are not on the invoice. In fact on the settlement doc, there is no indication as to what the $750 payment to the dealer is exactly. It just lists the dealer as the payee.
I’ve had a better look at the invoice and the breakdown is as follows:
Amount subject to GST: $24242.73
Transfer fee: $32
Stamp duty: $801
(looks like I need to split out the stamp duty and transfer fee… I assume stamp duty is capitalised and transfer fee is an expense??)
Then the settlement document lists the loan proceeds as follows:
Payee: Dealer - $24750 ($27500 less downpayment)
Payee: Chief commissioner of stamp duties - $45
Payee: Finance company - $350
Payee: Dealer - $750 (Any idea what could this be??)
Mortgage amount: $25895
I obviously need to clear this up with the dealer but I want to know what I’m talking about before I start shouting into the phone at someone I wonder should I call the finance company first to see if their invoice matches mine?
So you now need to re-vamp the Fixed Asset part of the Spend Money based on the above.
Or you could capitalise both (together as one entry)
The 750 could be Pre-delivery Charges or Vehicle Registration Fee or . . . . .
Ask the Finance first as they made the payment.
So the earlier Stamp Duties now appears to be Finance related
Ok cool I’ll capitalise both then. So yeah the $45 Stamp duty is finance related so how do I account for that?
Just combine it with the Finance Fee to Bank Charges
Ok so I think I’ve got it right now:
All that’s left to deal with now is the remaining $750 dealer charge (still waiting to hear back as to what it is exactly). Where should I account for that? Should I add another line for the $750 and allocate it to motor vehicle expenses?
If the car was purchased in Australia the accounting and tax treatment should be as follows:
- The car purchase price including GST should be $28,250. I would expect the Dealer Fee to include GST unless it was a very small dealer with a turnover of less than $75,000.
- The Stamp Duty $45 and the Finance Fee $350 should be capitalized as an Intangible Asset excluding GST under the name Borrowing Costs. The total cost of $395 is amortized over four years to an expense account named Borrowing Expenses.
- A loan account should be created for the total amount owing of $27,133.44 Cr and below the loan balance you should create an account named Unexpired Interest that will include the interest amount of $1238.44 Dr.
- Monthly repayments are allocated to the loan balance of $27,133.44.
- An amortization schedule should be prepared using the terms of the loan to allocate the interest of $1,238.44 over the term of the loan. Based on the interest calculations shown on the amortization schedule you will allocate the unexpired interest to an interest expense account over the term of the loan.
If the 750 does turn out to be a Dealer Fee then it would be added to the Fixed Asset and the total would be 28,250, if however it is registration/third party insurance then it would be MV Expenses.
The outlined stamp duty/finance fee treatment is more technically correct then a once only write off. If that is adopted, just add that amortization to the monthly loan repayment Spend Money
Debit - Borrowing Expenses 8.23
Credit - Borrowing Costs -8.23
With the final month being 8.19
Therefore your BS after the purchase would be: (as dealer fee)
@tony @Brucanna Thank you both for the info, I’ve learned a ton from this thread so your time is very much appreciated!!