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Enter a Chattel Mortgage

You generally have the choice of financing plant and equipment with: 

  • A Chattel Mortgage - a financing arrangement where the item being purchased secures the loan. The GST is claimable up front 
  • A Hire Purchase - a financing arrangement where the item is paid off periodically. The GST is claimed on each repayment
  • A Lease - leasing contract generally involves a series of lease payments with a residual payment payable at the completion of the contract. The lease payments will include GST which is claimable in the period the lease payment is made for both Accrual and Cash reporting. Farm leases are property rental leases and do not involve the acquisition of the underlying land asset.

Each of these options has different recording methods within Agrimaster. Hire Purchase or Lease repayments will simply be transactions coded accordingly with relevant GST on each repayment. The lease residual is the acquisition of plant and equipment and should be coded to Capital Payments. 

Chattel Mortgage ‘vs’ Hire Purchase 

The differences between Chattel Mortgage and Hire Purchase are broadly described below. 

Chattel Mortgage Hire Purchase
If you are on Accruals basis for GST, you can claim the full GST at contract settlement time e.g. ute purchase: $29,700 on 1 October 2015 - $2,700 GST claimed on 1 October 2015 If you are on Accruals basis for GST, you can claim the full GST at contract time e.g. ute purchase: $29,700 on 1 October 2015- $2,700 GST claimed on 1 October 2015
If you are on Cash basis for GST, you can claim the full GST at contract settlement time e.g. ute purchase: $29,700 on 1 October 2015 - $2,700 GST claimed on 1 October 2015 If you are on Cash basis for GST, you can only claim the GST portion of each payment e.g. ute purchase $29,700 – 10 monthly payments of $2,970. You may claim $270 each month
Interest can be allowed for when initially setting up the mortgage loan, otherwise the accountant can address it later Interest must be calculated on each repayment as per schedule obtained from the financer or the accountant
Repayments are exactly the same on each transaction and can be copied for ease of entry Each repayment must refer to the schedule to ascertain the principal component and the interest component
Financers generally recommend Chattel Mortgage for the purchase of farm plant Some dealers still recommend Hire Purchase for the finance of vehicles

Methods for recording a Chattel Mortgage in Agrimaster

There are two methods for recording a Chattel Mortgage in Agrimaster

  1. Using transactions only to reflect all components of the Chattel Mortgage
  2. Setting up a Chattel Mortgage as a bank account to reflect the liability 

Regardless of which recording option is used, it is essential that the full purchase price and trade-in full sale price (if appropriate) are shown in the cash book and the budget. 

IMPORTANT: The choice as to which option to use is up to you, unless your accountant directs you as to which option they would prefer. It is imperative that you consult your accountant before setting up a Chattel Mortgage as outlined in the methods below. As with all financial decisions, Agrimaster takes no responsibility for financial advice and merely offers suggested methods of recording. Please follow the advice of your accountant as to which method of finance best suits your financial situation. 

Information required to record a Chattel Mortgage

Ensure you have the following documentation to help you record the Chattel Loan

  1. The Tax Invoice (which reflects the following information) from the supplier:
    • Name, ABN, invoice number, and date
    • A full description of purchase of plant including the GST calculation
    • A full description for the sale of any trade-in of plant including the GST calculation
    • Amount to be mortgaged 
  1. A copy of the Chattel Mortgage agreement with the following information:
    • The full amount of loan
    • Interest amount
    • Costs including stamp duty and loan application fees
    • The number of repayments and due dates for each repayment
    • The amount of each repayment 

Option 1 – Using transactions only to reflect all components of the Chattel Mortgage

The main advantage of using this option is that you do not have another account to reconcile each month. The main disadvantage is that accountants may find it difficult to find all the information they need for the Statement of Position and Balance Sheet. 

Below are suggested codes with appropriate GST categories that should be used when entering transactions.

Codes Required GST Categroy
HP Payments Standard
Interest HP Financial
Chattel Payments Loans, Tax
Plant Sales Standard
HP Loans In Loans, Tax
Chattel Loan In Loans, Tax
Plant Purchases Capital
Stamp Duty GST Free
Bank Fees Financial

 

Below is an example of how you would record a Chattel Mortgage: 

Your business has recently purchased a new ute under finance after trading in the old ute. A deposit was made on the purchase. The information of the purchase is as captured in the below table: 

ITEM AMOUNT GST TOTAL

New Ute Purchase

$27,000

$2,700

$29,700 Dr

Traded in Ute

$7,000

$,700

$7,700 Cr

Finance Received

$20,000

 

$20,000 Cr

Deposit

 

 

$2,000 Dr

 

The only information available is the tax invoice, and the accountant wants the transaction to be kept simple as they will do adjusting entries at tax time. From the information in the above table, enter the purchase in Agrimaster against the codes in the table below. This is the simplest method of recording a Chattel Mortgage. The subsequent repayments will all be coded to Chattel Payments

CODE AMOUNT GST TOTAL

Plant Purchase

$27,000

$2,700

$29,700 Dr

Plant Sales

$7,000

$,700

$7,700 Cr

Chattel Loan In

$20,000

 

$20,000 Cr

Deposit

 

 

$2,000 Dr

 

Your accountant will adjust for the interest and other fees involved at tax time. 

 

Option 2 – Setting up the Chattel Mortgage as a Bank Account 

Your accountant may prefer the Chattel Mortgage to be set up as a bank account in the Agrimaster file so the full liability can be brought into the Statement of Position. Please note that you will need to reconcile the new account each month. 

To set up the Chattel Mortgage as a bank account, we will be using the same purchase data in the above example and the finance charges outlined below.  

CODE AMOUNT GST TOTAL

Plant Purchase

$27,000

$2,700

$29,700 Dr

Plant Sales

$7,000

$,700

$7,700 Cr

Chattel Loan In

$20,000

 

$20,000 Cr

Deposit

 

 

$2,000 Dr

 

The following finance charges are also included:

  • Stamp Duty $50.00
  • Interest $5,000.00
  • Finance Fee $25.00 

Further information that you may need:

  • The deposit of $2,000 was paid on 10 March 2016
  • The Tax Invoice was dated 22 April 2016
  • The farmer received the supply of the new plant on 22 April 2016
  • Total of repayments to be made over 5 years of $25,075
  • Total Mortgage = $25,075

Using the data above, follow the steps below to set up the Chattel Mortgage as a bank account:

  1. Setup a new bank account “Chattel Plant (name i.e. ute)” with an opening balance of $0.00
  2. Create a cash transfer from the new Chattel Plant bank account to the Farm Cheque Account for $20,000. This will create a liability for the Chattel Mortgage
  3. Enter a transaction for 10th March to record the cheque written for $2,000 deposit will be reconciled with the debit entry on the Farm Cheque Account reconciliation.
  4. When reconciling the Chattel Plant bank account, the closing balance will be entered as debit
  5. Record the following transactions for 22 April, 2016 in the Farm Cheque Account:  
CODE AMOUNT GST TOTAL

Plant Purchase

$27,000

$2,700

$29,700 Dr

Plant Sales

$7,000

$,700

$7,700 Cr

Deposit

 

 

$2,000 Dr

Total

 

 

$20,000 Dr

 

  1. In the new Chattel Plant bank account, enter the following transactions for April 22: 
CODE AMOUNT GST TOTAL

Chattel Interest

$5000

$0

$5000

Stamp Duty

$50

$0

$50

Bank Fees

$25

 $0

$25

 

Reconciling the Bank Accounts

Farm Cheque Account

The Farm Cheque Account will have a debit entry from the grossed-up purchase/sale entry and a credit entry for $20,000 from the cash transfer. 

Chattel Plant Bank Account

The new Chattel Plant Bank Account will have a debit from the cash transfer and another debit transaction for the other items such as interest & fees. 

These two added together will equal the total amount borrowed and the closing balance to enter is a debit. Tick off both transactions to bring the balance back to $0.00. 

Each repayment will be entered as a cash transfer from the Farm Cheque Account to the new Chattel Plant Bank Account. 

The effect of the cash transfer will reduce the balance of the Chattel Mortgage with each repayment. 

For instructions on reconciling bank accounts click here 

Please Note the following when using either option 

  • Each new Chattel Mortgage agreement should have its own separate bank account for Option 2 
  • Full details should be entered on each transaction detailing the type of purchase, sale or trade-in details 
  • If using Option 1, a new Chattel Payment code should be set up with the name of the plant included (e.g. Chattel Payment - header)

 

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