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Hi,
One of my clients (sole trader) has just purchased a new computer system on a lease/purchase agreement. I havent seen a copy of the agreement myself yet (and obviously will check it before entering in the books) but he tells me the terms are that he pays a monthly lease fee, and after 2 years has the option to upgrade to a new system and keep paying the lease. Or after 3 years pay an agreed amount and keep the system.
He is not sure at this point which option to go with. I just wanted to query the bookkeeping entries. Would I treat the monthly payments as an expense at this stage and then if he decided to keep the system it would become an asset? Also would the final agreed payment price be the cost of the fixed asset or would I have to factor in all of the lease payments he had made?
He is not VAT registered so dont need to separate VAT.
I appreciate any help with this one as it is the first time I have dealt with any sort of lease/hire purchase for a client.
Many thanks
Jacky
Edited at 14 Mar 2012 08:31 PM GMT
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