I purchased a machine and finance it by bank with the amount 1900000 and bank apply the finance charge 440000 for 3 years finance how to pass this entry still machine value is 2200000 is finance charge is interest (indirect exp.) pls help me.
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Answer / Prem Nirala
To account for this, you can record the machine purchase price as 1900000, the initial loan amount. Record the interest expense over the 3-year period with an annual interest rate of (440000/3) or approximately 14667 per year. The loan balance will decrease each year as you make payments while the interest expense is recorded annually. The machine value remains at 2200000 for asset accounting purposes.
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