Welcome to Corrections vs Remeasurement video with VLU.

This course is designed to introduce you to the best practice for using correction and remeasurement calculations. By the end of the course, you should be able to:

• Define a correction and remeasurement
• Understand when an adjustment and a full reversal correction is needed
• Understand when a remeasurement is needed

Please Take a moment to review the agenda. If you are looking for a specific topic, feel free to jump to the corresponding timestamp.

Introduction

Unfortunately, mistakes sometimes end up in the lease records, which must be corrected. If the error is caught before accounting feeds have been run, the schedule can be deleted in Visual Lease and a new calculation created with the correct data.

Once records have been submitted to the ERP system, the schedules must be properly corrected in the visual lease journal entries and disclosure reports. Because meticulous records must be kept for disclosure, it is important to use the appropriate method of correction which are labeled as “Full Reversal” and “Adjustment” in VL.

Full Reversals are used when the incorrect schedule was included in the accounting feed and cannot be deleted and the entire schedule needs to be corrected.

A full reversal is done for many reasons but a few examples are if the prior periods cannot be adjusted or want to write off the original calculations from the books.

“Note: A full reversal will be reflected in the original calculation, but the reversal should not be added to a Disclosure or Roll Forward report.”

An Adjustment should be used if there has been a mistake after the GL feed has been posted and locked, but a new calculation is needed when correcting the existing records which may create differences with prior reports.

A remeasurement should not be used to correct mistakes recorded in Visual Lease. Instead, remeasurements are used when a change is made to the terms of the lease, perhaps because details about the property or items subject to the lease are discovered to be different than what was recorded in the lease.

It is important to note, a remeasurement is a linked calculation and cannot be corrected.

There are various types of remeasurement calculations.

• Modification
• Abandonment
• And Impairment

To learn more about each of these remeasurements please visit our Visual Lease University.

Corrections: Full Reversals

In this video, we will go over an example scenario for when to use a full reversal correction.

As a reminder, full Reversals are used when the incorrect schedule was included in the accounting feed and cannot be deleted and the entire schedule needs to be corrected.

Consider a lease document which correctly states the space to be 1050 square feet at a price of $20 per square foot.

However, during abstraction, the space is incorrectly recorded into Visual Lease as 1000 square feet, leading to a discrepancy of $1000 owed annually that is not accounted for.

The accounting schedule is calculated using the wrong information, but the erroneous schedule has not yet been publicly released.

By running a full reversal, new calculations are generated with the correct square footage.

The erroneous calculation is changed to Historical – Full Reversal status and saved for your records. Calculations marked as Historical – Full Reversal should not be included in disclosure or roll-forward reports.
To perform a Full Reversal, navigate to the Lease Accounting subtab of the Financials tab. Select the Actions menu for the calculation that needs to be corrected. Click the kebab. Then select Make Correction.

For the correction method, select Full Reversal. Complete the process by filling out the required fields and working through the wizard.

Once complete you will see on the lease schedule were the lease ends but the ROU and Liability are not zeroed out. This is based on the date selected when starting the full reversal correction. The reason these are not zero is because corrections impact the Journal entries and not the schedule.

On the journal entries. For the ending month of the full reversal, you will see a journal entry that includes all the reversals for the correction.

Corrections: Adjustments

In this video, we will go over an example scenario for when to use an adjustment correction.

As a reminder, an adjustment should be made if there has been a mistake after the GL feed has been posted and locked, but a new calculation is needed when correcting the existing records which may create differences with prior reports.

An adjustment will not create a whole new schedule but will pick up the correction at a specified point and time and will continue with a new schedule.
For this example, the lease document states that the space is 1050 square feet for the price of $20 per square foot. During abstraction, the space is incorrectly recorded as 1000 square feet.
Payments have been made in the proper amount and the GL feed has been locked; however, the accounting schedule reflects the incorrect record. The entries cannot be deleted and the lease has not changed.
An adjustment must be made to bring the records back into alignment. In this example, the lessee recognizes the additional cash expenditure is recognized in the current period, the straight line rent is adjusted, and the asset and liability accounts are adjusted.

With this, the schedule now reflects what the current status would have been if the correct data had been used all along, and future entries will be correct.
To determine the best way to adjust the schedule, you will need to consult with your CPA or ERP.
To perform an adjustment in VL, open the Actions menu for the schedule that needs to be adjusted, and select “Make Correction.” In the Correction Method” select adjustment.
Fill out the required fields according to your adjustment plan.

Once complete you will see on the lease schedule were the lease ends but the ROU and Liability are not zeroed out when initial calculation is selected. This is based on the date selected when starting the adjustment. The reason these are not zero is because corrections impact the Journal entries and not the schedule.

On the journal entries when the adjustment calculation is selected, the journal entries start at the date selected when the correction was made and includes the prepaid rent that was added.

Remeasurements

In this video, we will go over an example scenario for when to perform a remeasurement.

As a reminder, remeasurement is not a correction and should not be used to fix incorrect records in Visual lease. A remeasurement calculation should be used when the lease itself must be adjusted due to an error or change.

It is very important to understand that a remeasurement calculation will impact many aspects of the record. It is highly suggested to reassess the record prior to deciding to conduct a remeasurement.

In this example, consider a lease stating that the office is 1000 square feet at $20 per square foot, and this is correctly abstracted into VL. However, a survey of the building reveals that the space is actually 1050 square feet.
The lease is changed to reflect the difference in the cost for rent.

This requires the accounting schedules generated in VL to be remeasured to reflect the new cost moving forward, as well as rent due in arrears.

Remeasurement calculations preserve the record history from before the change. Any disparity in payments is factored into the new amortization.

Key Takeaways

This concludes the video on corrections versus remeasurements.
Remember:

• Full Reversals are used when the incorrect schedule was included in the accounting feed and cannot be deleted and the entire schedule needs to be corrected.
• Adjustments are used a new calculation is needed when correcting an existing record
• Remeasurements should not be used to correct mistakes entered into Visual Lease; they are used when there is a mistake or change in the lease.

Thanks for watching. Questions, suggestions, or feedback can be sent to support@visuallease.com.