Assets & depreciation · Level: Exam
Journal entry: Asset purchase with extra costs
Delivery, registration or installation are part of the cost of the asset, so they are capitalised with it.
Worked example
We buy a delivery van for £17,500.00 net, plus delivery and registration of £400.00 net, both plus 20% VAT, paid by bank transfer.
Correct journal entry
Vehicles £17,900.00, Input VAT £3,580.00 / Bank £21,480.00
Debit
Vehicles£17,900.00
Input VAT£3,580.00
Credit
Bank£21,480.00
Why?
- Vehicles: asset increases → debit
- Input VAT: asset increases → debit
- Bank: asset decreases → credit
Calculation
- Cost including costs to get it ready for use: £17,500.00 + £400.00 = £17,900.00
- VAT: 20% of £17,900.00 = £3,580.00
- Gross amount: £17,900.00 + £3,580.00 = £21,480.00
Typical mistake
Expensing the extra costs instead of capitalising them.
Your turn
Three problems on exactly this case, with different numbers. Amounts work with or without separators, e.g. 2,400.00 or 2400.
Transaction
We buy a delivery van for £37,000.00 net, plus delivery and registration of £1,200.00 net, both plus 20% VAT, paid by bank transfer.
Debit
Assets up · expenses · liabilities down
Total debit£0.00
Credit
Liabilities up · income · assets down
Total credit£0.00
Frequently asked questions
What is the journal entry for asset purchase with extra costs?
Example: Vehicles £17,900.00, Input VAT £3,580.00 / Bank £21,480.00.
How do I recognise this case?
Delivery, registration or installation are part of the cost of the asset, so they are capitalised with it.
What is the typical mistake?
Expensing the extra costs instead of capitalising them.