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Capital expense?

Question asked by Alan Bennett 2 years ago

I am going to purchase a laptop on 12 months interest free, paying it off gradually over the year. If I purchased it outright it would be a simple case of making it a capital expense and write it off over three years. I’m not sure how it works though when it is purchased in this way as it won’t actually be fully owned by me until next year.

6 Replies

Hi Alan

If you acquire an asset on finance, eg loan, credit or even HP, you treat the entire purchase as a fixed asset and depreciate it on the day you get it (eg the invoice date), the fact you don't pay for it till a year's time is irrelevant.

The treatment might be different on a leasing agreement but I doubt you've signed that for a laptop.

So, as Theo suggests enter the bill for the laptop as a bill, putting the whole cost to the relevant fixed asset account, then just pay it all off via a loan account and put the monthly payments from your bank account to the loan account.

Morning Alan,

I would recommend creating the bill for the laptop then paying that with a new loan account.

As the payments are made against the laptop, transfer the funds from your account to the loan account until the loan/laptop repayment is fulfilled.

Can I still call it a capital expense and depreciate it from day one even though I'm paying it off gradually?

Technically you could add this expenditure as Capex, although I would recommend confirming with your accountant the best manner in which to register this item as generally, Capex is funds used by a company to acquire, upgrade, and maintain physical assets such as property, industrial buildings, or equipment.

I am unsure what criteria need to be met for the item to be considered equipment in this instance.

Hi Alan

If you acquire an asset on finance, eg loan, credit or even HP, you treat the entire purchase as a fixed asset and depreciate it on the day you get it (eg the invoice date), the fact you don't pay for it till a year's time is irrelevant.

The treatment might be different on a leasing agreement but I doubt you've signed that for a laptop.

So, as Theo suggests enter the bill for the laptop as a bill, putting the whole cost to the relevant fixed asset account, then just pay it all off via a loan account and put the monthly payments from your bank account to the loan account.

Thanks so much Paul, I really needed to know that

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