I am seeking guidance on the appropriate GIFI code in the balance sheet (T2) for recording a deferred interest portion of a car which is purchased on financing for a period of 5 years. E.g. A Car purchased for an amount $100,000 in 2023 on financing payable $120,000 in 5 years.
GIFI 1742 Vehicle $100,000 DR.
GIFI ? ? Deferred interest 20,000 DR
GIFI 3140 Vehicle loan payable 120,000 CR.
Can anyone help me to identify the correct GIFI code in schedule 100. I shall appreciate. Thanks.
Why would you want to get tangled up in deferred interest?? The entry is DR Vehicle $100,000 and CR loan payable $100,000. As payments are recorded, the accounting entry will be to credit bank for periodic loan payment (weekly, monthly, etc.) and DR loan payable, DR interest on long-term debt (expense). Once you have the loan details, you prepare an amortization schedule and use those numbers for the interest/principal breakdown on each payment. The liability is whatever the loan balance is at a particular point in time. In my 50+ years in this game, I have never seen a setup like you’re proposing.
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Capital lease? Because the liability is the full amount. But can’t think of a loan scenario that would apply.
@naseemcpa
Before trying to figure out what GIFI codes to use, ensure you are accounting for the substance of the transaction correctly. Is the company immediately and fully liable for the $20,000 in deferred interest? That is, if the company decides to pay out the loan early, or give the vehicle back to the dealer after a few months, will it still have to pay the full $20,000 in interest? If so, then you are correct in recording the full $20,000 in deferred interest. If not, you must consider the date at which the interest is payable, and record it only on that date. And, given the magnitude of the balance, and the time frame involved, it might be necessary to calculate the liability based on the present value of the future cash flows.
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