·         The various lease accounting inputs

·         Modifying an existing calculation

First, let’s visit the General Tab of a lease record.  In particular, the Record Type, Commencement and Expiration Dates are key inputs.

Record types will establish whether this is treated as a Lessor or Lessee record, and may also affect other treatments depending on your configuration.

The Commencement and Expiration Dates will serve as the default start and end dates to your lease accounting calculations.

Make sure to review and confirm these fields before building your calculations.

Financial entries are a key input into your accounting calculation. At a minimum, this could include base rent, but may include other items, including but not limited to end of lease costs.

This type of remeasurement is required if there is a change in the lease or an option was exercised, such as a change in payment terms or an extension of the lease term.

But before we explore that further, let me show you the other areas of this module.

The screen breaks into various sections such as the lease schedule and journal entries summary for the selected calculation. Additionally, in the left sidebar, the Accounting Information section contains basic lease information, that will impact all calculations on the lease

Once you create lease accounting calculations, additional actions will become available.

To get started, Find the calculation you wish to modify and click here to begin a remeasurement calculation.

If there is a change in the calculation, such as a change in payment terms or an extension of the lease term, you will need to complete a Modification remeasurement by selecting the option from the ‘type of remeasurement’ drop-down list. Then, enter an effective date.

Once your selections are made, click Create Remeasurement. The Calculation Wizard will open and will walk you through each step of creating a modification.

You will, however, need to specify the calculation status.

Some statuses cannot be assigned to a remeasurement calculation, depending on the status of the predecessor calculation. The platform will tell you if the status is valid once you click Next.

Pending status is typically what I recommend using at first, because that gives you the ability to review the lease schedules and journal entries before you activate the calculation.  As a pending calculation, data will not flow through to your Accounting Feed, so you can feel confident that your calculation is set up correctly.  You can then easily make it active.

Active is used to identify live calculations, which will enable them to flow through to your ERP system.

We also have the ability here to create hypothetical calculations.  If you’re looking at various scenarios and want to do some “what if” analyses, but don’t have any intention of those ever being live calculations, hypothetical is a good way to segregate those calculations.

The Use Schedule Upload checkbox enables you to upload precalculated schedules (using a provided template) pertaining to rare scenarios that Visual Lease currently does not calculate, so they can be compared to Visual Lease-calculated schedules. You also have the option to upload the corresponding journal entries in the same template or have journal entries generated from the provided schedule. The uploaded schedule and journal entries will flow to the appropriate GL feeds. When selecting this option, you will have the opportunity to upload the template in step 6 of the wizard.

Once you make your selections, hit next to arrive at the next step of the wizard.

The start date is the effective date you entered in the beginning of the remeasurement wizard and the End date defaults to the expiration date of the lease that can be found on the general tab.

Check “send to accounting feed” if you want the information sent to the ERP system when the status is moved to Active.  Prorate Lease Payments typically will not have an impact on your numbers, but it applies in the rare event of the cash payment and accounting schedule prorating a period over different durations.  Unchecking this box would prevent a double proration.

For example, here you can bring in an initial prepaid rent. Initial Prepaid Rent entered here will be applied to the first period’s payment and thereafter until the entire prepaid amount is reached.

You only enter a Probable amount Owed under RVG at the end of the lease if you have some reasonable expectation of that amount.  You might have some expectations at commencement, but it is much more likely you will not have any level of certainty until you get closer to the end of the term.

Remember that Residual Value Guarantees are handled differently under the new standards.  If the guarantee exists, enter it in the RVG box.

Any unamortized lease incentives and initial direct costs are also entered here. Everything in these new accounting schedules standards is based off of the time value of money. If you’re accelerating those payments one month that’s going to have an impact on those assets and liability values; go ahead and take advantage of that.

It is important to note, that if the predecessor  calculation entered a value for lease incentives, but wasn’t the actual amount, the “incentives not included in initial estimate” field should include the remaining amount that wasn’t given in the initial estimate, so that the actual incentives amount is covered between the two calculations.

Each entry listed here will be ones that exist on this lease within the start and end date of this calculation (specified in Step 2).  I also have a payment that’s being treated as a variable expense. It will flow through to my disclosure statements, but it is not part of the basis of calculating the asset and liability schedules.

While I can override the default by changing the selection, I’m just going to keep the payments entries and treatment types consist with my defaults. So I accept this and move on to the final step.

Questions three and four are objective value questions:

·         75% of the useful life or

·         NPV more than 90% of the fair market value.

These are automatic calculations.These values are adjustable, consistent with the revised guidance under ASC 842.

Please note, for IFRS16 and GASB87 there will be fewer questions to answer, since all such calculations are considered Finance, unless you take certain practical expedients.

You can learn more about this in our VLU course on short term, low value leases.

Note that the predecessor of this modification has an end date that is one day prior to the start date of the modification.

When viewing the Predecessor schedule you will see all dates past the end date are grayed out. This is because those dates are picked up by the modification. That same thing will happen in the journal entry for the predecessor calculation.

You can also change the view by clicking on the pivot icon, here. This will switch the columns and rows giving you a list-type view that will not require as much horizontal scrolling.

In this view, the action menu will be located here, and is where you will be able to perform actions such as create a remeasurement calculation.

Please note, though, that the Description given here is NOT the GL account where the value will be posted, it is merely a system description.  During your platform configuration, mappings were created which consider the description, the asset class, the accounting standard and lease type, and direct the values to the appropriate accounts in your General Ledger.

You can filter your journal entries by year by clicking here and selecting a year, or multiple years, or by entering a date range.

This type of remeasurement is required if there is a change in the lease or an option was exercised, such as a change in payment terms or an extension of the lease term.

GASB 87 calculations are similar to FASB 842 and IFRS16 with a few caveats in the calculation wizard.

But before we explore that further, let me show you the other areas of this module.

The screen breaks into various sections such as the lease schedule and journal entries summary for the selected calculation. Additionally, in the left sidebar, the Accounting Information section contains basic lease information, that will impact all calculations on the lease

Additionally, in the left sidebar, the Accounting Information section contains basic lease information, that will impact all calculations,

Once you create lease accounting calculations, additional actions will become available.

To get started, find the calculation you wish to modify and click here to begin a remeasurement calculation.

If there is a change in the calculation, such as a change in payment terms or an extension of the lease term, you will need to complete a Modification  remeasurement by selecting the option from the ‘type of remeasurement’ drop-down list. Then, enter an effective date.

Once your selections are made, click Create Remeasurement. The Calculation Wizard will open and will walk you through each step of creating a modification.

You will, however, need to specify the calculation status.

Some statuses cannot be assigned to a remeasurement calculation, depending on the status of the predecessor calculation. The platform will tell you if the status is valid once you click Next.

Pending status is typically what I recommend using at first, because that gives you the ability to review the lease schedules and journal entries before you activate the calculation.  As a pending calculation, data will not flow through to your Accounting Feed, so you can feel confident that your calculation is set up correctly.  You can then easily make it active.

Active is used to identify live calculations, which will enable them to flow through to your ERP system.

We also have the ability here to create hypothetical calculations.  If you’re looking at various scenarios and want to do some “what if” analyses, but don’t have any intention of those ever being live calculations, hypothetical is a good way to segregate those calculations.

There is also an option to choose a retrospective period calculation, but this has no function for GASB.

Once you make your selections, click next to arrive at the next step of the wizard.

The start date is the effective date you entered in the beginning of the remeasurement wizard and the End date defaults to the expiration date of the lease that can be found on the general tab.

When creating a GASB 87 calculation, if your organization requires fund accounting, Check the box, Fund Journal Entries, to generate additional journal entries into your GL feed.

Select “send to accounting feed” if you want the information sent to the ERP system when the status is moved to Active.  Prorate Lease Payments typically will not have an impact on your numbers, but it applies in the rare event of the cash payment and accounting schedule prorating a period over different durations.  Unchecking this box would prevent a double proration.

For example, here you can bring in an initial prepaid rent. Initial Prepaid Rent entered here will be applied to the first period’s payment and thereafter until the entire prepaid amount is reached.

You only enter a Probable amount Owed at the end of the lease if you have some reasonable expectation of that amount.  You might have some expectations at commencement, but it is much more likely you will not have any level of certainty until you get closer to the end of the term.

Remember that Residual Value Guarantees are handled differently under the new standards.  If the guarantee exists, enter it in the RVG box.

In addition, note that you have the ability to indicate whether or not lease payments are consistently prepaid one month prior. If you’re in a situation where you’re sending paper checks, and you mail them before the end of the prior month to ensure that it reaches the landlord by the first, you can go ahead and select Yes.

Any unamortized lease incentives and initial direct costs are also entered here. Everything in these new accounting standards is based on the time value of money. If you’re accelerating those payments one month that’s going to have an impact on those assets and liability values; go ahead and take advantage of that.

It is important to note, that if the predecessor calculation entered a value for lease incentives, but wasn’t the actual amount, the “incentives not included in initial estimate” field should include the remaining amount that wasn’t given in the initial estimate, so that the actual incentives amount is covered between the two calculations.

Each entry listed here will be ones that exist on this lease within the start and end date of this calculation (specified in Step 2).  I also have a payment that’s being treated as a variable expense. It will flow through to my disclosure statements, but it is not part of the basis of calculating the asset and liability schedules.

While I can override the default by changing the selection, I’m just going to keep the payments entries and treatment types consist with my defaults. So I accept this and move on to the final step.

Answer if there is a Bargain Clause on the lease, which is defaulted to no. If Yes is selected, then the leased asset is amortized over the useful life of the asset and the lease term is not used for amortization purposes.

Please note, for IFRS16 and GASB87 there will be fewer questions to answer, since all such calculations are considered Finance, unless you take certain practical expedients.

Let’s go ahead and save this modification

Note that the predecessor of this modification has an end date that is one day prior to the start date of the modification.

When viewing the Predecessor schedule you will see all dates past the end date are grayed out. This is because those dates are picked up by the modification. That same thing will happen in the journal entry for the predecessor calculation.

Please note, though, that the Description given here is NOT the GL account where the value will be posted, it is merely a system description.  During your platform configuration, mappings were created which consider the description, the asset class, the accounting standard and lease type, and direct the values to the appropriate accounts in your General Ledger.

Remember…

·         A calculation must exist on the lease in order for a modification remeasurement calculation to be completed.

·         If there is a change to the lease, such as an extension of the lease term, or a change in payment terms, a modification remeasurement calculation will need to be completed.

·         The end date of the predecessor will be one day prior to the start date of the modification.