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Hi Sir, I would like to ask something about hire purchase.
For example, the company purchase a car of RM70,000. He pay 20,000 for down payment. Therefore, the remaining 50,000 is paid using hire purchase facilities for 6 years. The interest rate per annum is 5%.
What is the accounting treatment for the example above?
Will it required open a interest in suspense account?
What is the real meaning of interest in suspense account?
and I want to ask lease and hire purchase is it the same?
Thanks youAn interest in suspense account is where you calculate the entire interest to be paid over the life of the contract and:
Dr Interest Suspense Account
Cr Hire Purchase Creditor AccountWhen instalments are paid:
Dr Hire Purchase Creditor Account
Cr Cashand
Dr Finance Charges (with this year’s interest)
Cr Interest Suspense AccountApart from the use of an Interest Suspense Account, the accounting entries are not wildly dissimilar to those required for lease accounting
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