When an Asset is purchased through Finance, the total value of the Loan Interest is added to the total value of the Loan. Furthermore, additional Loan charges may apply, these are defined as Borrowing Costs.

Interests on Loan

The total value of the Loan Interest is posted to an Unexpired Interest Liability account. At the of the Financial Year, the Accountant will then calculate the Interest expired for the relevant year and post that portion of the interest as Interest expenses as part of the End of Financial year adjustments.

Borrowing Costs

Any Borrowing costs over $100 cannot be fully deducted in the year that has been incurred. These costs must be amortised either over 5 years or the term of the loan, whichever less. 

Recording Borrowing Costs and Unexpired Interests

1. In Xero go to Accounting > Manual journals
2. Click on [New Journal]
   
   è  The New Manual Journal screen opens
   
   
   
   

1. Select/Enter the following details
   • Narration > Type: Motor Vehicle #regoplate or #assetname Unexpired Interest and Borrowing Costs
   • Date > Type the date of the Loan
   • Amounts are > select No Tax
   • Line 1: Accounts > Select the Motor Vehicle Loan #regoplate or #assetname Unexpired Interest and post the total value of the loan interest in the Debit column
   • Line 2: Accounts > Select the Borrowing Cost Asset account and post the value of the Borrowing Costs in the Debit column
   • Line 3 Accounts >Select the Motor Vehicle Loan #regoplate or #assetname  account and post the journal balance in the Credit column
2. Click on [Post]