Create a lease
The process for creating a new lease involves entering information for the lease and then creating a lease schedule. After a lease has been set up, you might find it easier to copy the information from an existing lease and then edit that information, as needed, to create a new lease.
Follow these steps to create a lease in Asset leasing:
Go to Asset leasing > Leases > Lease summary.
On the Action Pane, select New.
On the General FastTab, in the Lease description field, enter the lease name.
In the Fair value of the asset field, enter the fair value, which is normally included in the contract for the lease. If the contract doesn't contain a fair value figure, enter a fair value for a comparable asset.
In the Implicit rate (%) field, enter the implicit rate of the lease. This value isn't required if the rate isn't specified in the lease terms. In that case, the borrowing rate will be used to discount the lease payments.
In the Incremental borrowing rate (%) field, enter the incremental borrowing rate for debt with similar risk and term profiles, if your organization is a publicly traded company. If your organization isn't publicly traded, you can enter the risk-free rate of a similar term to the lease.
In the Compounding interval field, select the number of compounding periods within a year.
In the Asset useful life (Months) field, enter remaining periods of useful life from the lease commencement date. This date is not the original useful life.
In the Deferred rent carryover field, enter the deferred rent carryover amount for operating leases that were previously modified. This deferred rent carryover will be used to calculate the straight-line cost over this lease. The beginning balance of deferred rent will include this amount.
In the Transfer of ownership field, select Yes if the lease transfers ownership at the end of the term; otherwise, select No.
In the Unique asset field, for US GAAP only, select Yes if the underlying asset is so specialized that it's unlikely to be useful to the lessor at the end of the lease term. The lease will then be classified as finance.
In the Annuity type field, select the annuity type. This field is used to determine if the lease is due at the beginning of the payment period or at the end of the period that's used to discount the lease payments.
In the Initial direct cost field, enter incremental costs of a lease that would not have been incurred had the lease not been implemented. Costs that are directly or indirectly attributable to negotiating and arranging the lease (for example, external legal costs to draft or negotiate a lease or an allocation of internal legal costs) are not considered initial direct costs. Indirect costs are not capitalized but expensed as period costs.
In the Lease incentives field, enter payments that are made by the lessor to the lessee as an incentive to sign the lease. The amount of the incentives will be subtracted from any right-of-use asset calculations.
In the Lease prepayments field, enter payments that are made to the lessor prior to the commencement date. These costs will be added to the right-of-use asset but not to the lease liability.
In the Dismantling costs field, enter the estimated cost of dismantling and removing the underlying asset when the lease expires. This cost will be added to the ROU asset. This cost is applicable only to users who are working under IFRS 16. If you're working under US GAAP rules, don't enter an amount in this field. Doing so will cause the right-of-use asset value to be calculated incorrectly.
In the Residual value guarantee field, enter any guaranteed residual value amount to be paid from the lessee to the lessor at the end of the lease. If a lease contains a provision that provides the lessor with the right to require the lessee to purchase the underlying asset by the end of the lease term, the stated purchase price should be included in lease payments. The purchase price is effectively a residual value guarantee that the lessee is required to pay (in other words, the payment of the purchase price is outside of the lessee’s control).
In the remaining FastTabs, enter the information that you have as it pertains to the lease contract.
Watch the following video for a demonstration of how to create an asset lease.