Introduction

Welcome to Introduction to Day 2 Accounting.

By the end of this video, you will:
• Have a better understanding of what Day 2 accounting is
• How exercising an option affect financial schedules, and how to fix it
• How lease administrators and accountants cooperate when an option is exercised

Please take a moment to review the agenda. To view a particular topic, jump to the corresponding time stamp

What is Day 2 Accounting?

In this video, we will discuss what Day 2 Accounting is and what falls under this categorization.

The lease life cycle has various stages, some of which are considered Day 2 accounting, while others are not. Let’s cover the basics. Here is a list of the life cycle stages.

First, there is the lease inception and commencement, followed by the initial recognition and measurement. All of which are considered day 1 accounting.

Next, there are any subsequent remeasurements, which may sound like a day 2 accounting but it really is not, it still falls under the day 1 category. What this section really means is what happens every month after the inception but in the absence of any sort of changes. This is due to the particular parameters being set up, and a schedule where everything is going to happen automatically over the remaining life of the lease. UNLESS some other activity is taken

For example, imagine an operating lease. We know the periodic rent expense is going to be straight-lined.

We know that every month, the liability is going to decrease by the amount of cash paid, less the interest accrual for the time value of money. That’s the liability reduction.

We also know the Right of Use Asset Amortization is going to be the straight-line rent expense, less the interest for the time value. This will be the amortization reduction of the right-of-use asset, which happens every month automatically.

So the first three images on this infographic is all really day 1 accounting. The remaining are all considered day 2 operations.

The one to focus on is the liability remeasurement. But when is it necessary to remeasure liability? Typically, it’s when there is some change in the financial structure of the lease. In this next graphic from the Deloitte guide, there are some examples of this, which can be the following: it can be a change in the lease term, the assessment of a purchase option exercise, or an assessment of an option to extend the term.

In the case of extending the term, there will many things that may need to be updated:
1. first, the structure of the lease payments, also known as the consideration for the contract, which is modified in the Financial Entries page
2. the consideration allocation, which is if the organization structure changes. Change this in the allocations page
3. Next there is the stand-alone prices. If multiple schedules are created in the record, select the appropriate ones in the wizard
4. the discount rate gets updated, in most cases
5. and lease classification, if applicable

Please note: If the modification is just a change in the residual value guarantee, then use the same discount rate, do not change it. There are rules on how some changes will be applied.

In the visual lease platform, most of these changes or updates will be handled with modifications, remeasurements etc…in the lease accounting module.

Exercising an Option

In this video, we will discuss exercising an option and creating the appropriate changes to the entries and lease accounting pages.

When exercising an option, there will be changes to terms and conditions, and perhaps other terms of the lease. It is best practice to create a process when activity by the lease administration makes a note of the change for the lease accounting side to see, and complete that remeasurement or recalculation.

To set up an example, there is a lease that runs through 2025 and a schedule was created in the entries tab showing a 3% increase being applied each year.

There is also a clause that if the option is exercised, it will run an additional 5 years, with it likely to be exercised and renewed at 95% of Market Rate

First let’s show you what not to do. Navigating to the lease accounting page, you can see the original schedule was created, but at the end of May 2023, this option is likely to be exercised. Without adding additional entries to account for the exercised option, the rent will display as zero dollars after the option has been exercised. It is important to add the additional increases BEFORE completing the remeasurement.

To add the increases, navigate to the Entries page and click edit. Assuming the 3% increase is still in place we will click Add Increase. Add the date for 12/1/2026 since the current annual increase only runs through 12/1/2026. Select Repeats Annually and type in 1 year. The select the percent radio button and add in 3%. Repeat this step for 1/1/2027 and beyond (for however long needed). Once done, click save.

Next, enter an end date for the extended option that was exercised.

Please note: The platform is not looking for the exercise date, instead it is looking for the expiration date located on the general tab, which is November 30th, 2025, which isn’t capturing the extended term of the lease. So in this case, you will need to enter an end date here, to reflect the end date as November 30th, 2030. If the end date is not entered here, the rent will show as zero on the schedule after the exercise date.

Now that there are increases beyond 2025, we will then head to the lease accounting page and find your calculation. In this case it is the transition calc from FASB 840 to 842 and select actions from the drop-down menu. Select Create a remeasurement. The type will be a Modification and the date will be June 1st, 2023. Navigate through the wizard adding any necessary information. In this case we are keeping the defaults. Once complete click Save. Once complete you can see on the schedule that the exercised option is picking up the additional rent from 2026 and beyond.

Please note: Until an actual agreement is made with the landlord, this process is only providing an estimate.

Lease Administration and Lease Accounting

In this video, we will discuss how lease administration and lease accounting must collaborate when an option is exercised.

So how does this tie into the connection between lease administrators and lease accountants?

If a company has an arbitration process where, in our example, is 95% of the market value, they will go ahead and renew.

To do this, there needs to be a remeasurement to recognize that the option is likely to be exercised. Then, another remeasurement is exercised to true up the expenses.
In order for this to happen, there will be a collaborative effort between lease administration and accounting.

First, lease administration will need to go to the general tab and open the lease options section on the left. Then click on available to exercise the option automatically. Once complete, the lease option that was just exercised will be removed from the section and will display as “exercised” in the clauses tab in the options section.

Next the administrator will come to the financials tab and click on Entries to update the financial entries to reflect the new agreed upon terms.

At this point in time the lease administrator should contact the lease accountant that a modification needs to be made. To assist in shortening the time, the administrator can come to the clauses section and modify the option and any changes that are part of the exercise of that option.

While the administrator is completing the work in the clauses, the accountant will complete the modifications as shown in the previous section of this video to create the new term.

Key Takeaways

This concludes the video on Intro to Day 2 accounting.

Remember…
• Not all parts of a record’s or lease’s life cycle is considered day 2 accounting
• When exercising a lease option input entries and enter a new end date on the entries page before conducting the remeasurement
• Administrators and Accountants should work cooperatively when exercising an option
Thanks for watching. Any questions, suggestions, or feedback can be sent to support@visuallease.com

Introduction

Welcome to Net Present Value training with VLU. This video is designed to give you a better understanding of what Net Present Value is, and the different methodologies used to generate it.

The the end of this course, you should be able to:
• Understand how Net Present Value is utilized in accounting
• Know how Net Present Value is calculated
• And how to calculate Net Present Value for mid-period payments.
Please Take a moment to review the agenda. If you are looking for a specific topic, feel free to jump to the corresponding timestamp.

Understanding Net Present Value (NPV)

In this video, we will discuss how Net Present Value, or NPV, is used in accounting and how it is calculated.

NPV is a capital budgeting method used as part of the Cost Benefit Analysis to determine the profitability of an investment. It is an essential tool for assessing the viability of investments by accounting for the time value of money. This way, you can compare the investment cost in today’s dollars and the value of the expected return.

NPV can be applied to your lease liability by applying an incremental borrowing rate to determine the present value of the lease payments. Applying the formula will give you an interest and principle as if your lease was a loan.

Things to consider for the formula:
• Number of periods in the calculation
• The Interest or Discount rate
• The Present Value or what the money is worth today
• The regular payments being made
• And what is the future value or in other words, what is the dollar worth at the end of this time being calculated

For example, buying a house:
• You take out a 30 year loan, so you know the number of periods is 360 (months)
• You know the interest rate the bank will charge
• You know the present value, or, the amount of money being borrowed
• You know the future value will be zero since the loan will be amortized down
• So with all this information, we need to solve for the payment amount

So with that, the formula can be explained as follows:
• Net Cashflow at a point in time (Rt)
• Over 1 + i (or interest) to the power of the number of periods

In order to use this formula you will need to find the information needed for it. But where can it be found? It can be found in the visual lease abstract report.

Please note, this report is color coded for illustration purposes only. The report will not contain these colors.

Here, the interest rate is highlighted in Blue (i). Scrolling down further we have the period in red, the payments in yellow, and scrolling all the way down to the bottom of the calculation, the liability will display as zero, which is the future value, highlighted in light blue. With this information we can solve for the present value (7:26)

NPV for Individual Months

In this video, we will discuss the different methodologies for calculating present values for individual months, and why they are different.

The Present Value for individual months can be calculated with two different types of methodology. The first is using the Beginning of Period, and the second is using End of Period methodology. Each methodology will give slightly different results. (8:10)

Please note: It is important to use the same calculation method that is used for making the interest charges.

In beginning of period methodology, the interest is calculated based on the payment being made at the beginning of the month. Take the ending balance from the previous month, subtract the payment, and then multiply by the interest rate.

Note: The payments included in this methodology start with payment number 2. The first payment cannot be discounted in this formula and needs to be added at full face value.

In end of period methodology, the interest is calculated for payments made later in the month. Multiply the ending balance by the interest rate, then subtract the payment.
Both methods are allowed under all reporting standards. It may be more appropriate to use the method that most closely matches when you make payments. However, the most important thing is to be consistent. If you are unsure of which method your organization uses, or which you should use, consult with your ERP.

Visual Lease supports both methods and should be set up during implementation. It can be changed in Administrator at any time; however, only make this change if you are confident that it must be done.

Note that in Visual Lease, Beginning of Period is selected by default. If the calculations done in Visual Lease do not match those done in another tool, such as Microsoft Excel or your ERP, check which methods each platform is using. Excel uses End of Period by default.

If you are using a variable period calendar such as a variant of 4-4-5, or a 13-period calendar, the calculations will be done slightly differently. Visual Lease calculates these calendars daily rather than monthly. This may cause some discrepancies in the reported values.

Consult with your ERP to determine if an adjusting entry is needed.

Calculating NPV with Mid-Period Starting Points

In this video, we will discuss calculating present value when payments that are recurring in the middle of the month instead of at the beginning of the month.
In Visual Lease, the date of the payment is an important date because it will be assigned to that period where a period is considered a month. The platform uses the convention that payments are made at the beginning or end of each period (or month).

For example, there is a mortgage on house for $2000. The payment is made in February which only has 28 days. However in March, the same $2000 payment is made even though there is 31 days in that month. The reason the payment is larger in march is because the platform uses the convention that months are equal periods. There is nothing smaller than a month, or in other words, for NPV, the number of days are not considered.

For example, the lease payments are all 10,000 a month, then this one that is paid in the middle of the month. However in the P&L column here, it displays the prorated amount to account for the mid-month payment. But the cash payment is still the same for each period.

If calculating a straight forward NPV using Beginning of Period methodology, the NPV calculation will not agree with the platform calculation. Why is this happening? Because the first period payment happened mid month, and the second payment was made for the 2nd period, but it was only 12 days later instead of a full period. So how do we fix that? We add a new period number that is 12 days of a 31 day month. Then all numbers after that are the full period plus that fractional amount.

As a result, a slightly different formula needs to be used to account for that.

Instead of NET present value. We use the PRESENT VALUE of that single payment. To do this, take the discount rate divided by the number of periods for the per period discount rate, in this case 12. Then take the period number, payment is blank, minus the amount of the payment as a future value, which will then solve for the Present Value. Adding all the present values will then give the Net Present Value, which will then be in agreement with the platform for Total Ending Liability.
To sum it up the process, follow these steps when solving for NPV with a mid-month payment:
1. Use the Beginning of Period Methodology
2. Understand the first payment has no discount factor
3. The second payment is based on the # of the payment was made mid-month, in our case it was 12 out of 31 days, which is calculated as a fractional payment
4. Each subsequent period should be 1 more than the prior period.
a. So you should have the initial fractional period, +1 period, + 1 period, continuing to the current payment
5. Solve for present values
6. Sum the present values to get in agreement with the ending liability.

Key Takeaways

This concludes the video on Net Present Value.

Remember:
• All the numbers needed for the NPV formula can be in the abstract report
• It is important to select an NPV methodology that is consistent. In other words, don’t use two different methodologies or you will receive inconsistent results
• NPV can be calculated for mid-period payments but extra steps need to be taken in order to account for the fractional payment.
•
Thanks for watching. Any questions, suggestions, or feedback can be sent to support@visuallease.com

Introduction

Welcome to Functional Currency and applying exchange rates with VLU.
In this video, you will learn.

• The difference between record currency, local currency, functional currency, and reporting currency.
• What a currency table is, and how to access it
• The differences between spot rate and average rate on a transaction
• How to edit rates and the impact they can have on transactions
Please Take a moment to review the agenda. If you are looking for a specific topic, feel free to jump to the corresponding timestamp.

Currency Types

In this video, we will discuss the differences between record currency, local currency, and functional currency, as well as how to utilize a roll-forward report to tie multiple currencies together.
A record could have up to 4 different currencies affecting the record. There is a Record/Lease Currency, a local currency, a functional currency, and a reporting currency.

In most cases, the record currency will be the same as the local currency, where payments are made in the same currency where the record is located. For example, a record that is located in the USA gets paid in the local currency of USD.

Although this is the typical set-up, there are rare instances where the record currency is different than the local currency. For example, a landlord in Mexico may want to be paid in USD, the record currency, instead of Pesos, which would be the local currency.

A functional currency is the currency that the business entity does the accounting in.

For example, if there is a European operation based in London and the books are kept in British pounds, but they have records in other countries where payments need to be made in the local currency. However, the payment in local currency will be converted to British pounds since the company’s books are being kept in this currency.

Please note: If functional currency is not present in the general tab of a record, and your company wishes to utilize this, please contact support to get this feature turned on.

Also note: There are different rules when going from a lease currency to functional currency vs. going from a functional currency to a roll up reporting currency. Each instance will be treated differently. By turning on Functional Currency, you will be able to see how the platform automatically applied the proper rules at both levels.

If functional currency is not turned on, then each transaction will have to follow the rules for a remeasurement which is lease currency to functional currency, or a translation, which is functional currency to reporting currency (6:01) by checking the box “Current Spot Rate for non-monetary assets”

When functional currency is turned on however, that checkbox should be be ignored. Checking this box when Functional Currency is enabled can cause discrepancies in the accounting.

Let’s imagine a multinational organization owned by a single parent company. Local Organizations may use a functional currency such as British pounds or Japanese Yen. This company can use a reporting currency that will be translated or “rolled up” into US Dollars for the parent company to add together for reporting.

However, those transactions are not recorded on the parent company’s books. Instead, those are recorded at the functional level.

This can be done utilizing the Roll Forward report in Visual Lease. Here, we will see Please note: The headers of this report have different colors for illustration purposes. Your actual reports will not contain this color coding.

The section in blue is all of the information about the record.

The next set of columns in red identifies the record currency, payment, ROU amortization, and interest.

The columns with the purple header regard the functional currency and its translation from the record currency in red to functional currency in purple which is a remeasurement.

The remeasurement historical spot rate will display the exchange rate between the record currency and the functional currency.

Historical Spot rate are where spot rates that were in effect at the commencement of the lease record. This is important in a remeasurement because the nonmonetary assets are always remeasured using the historical rate.

The lease payment column is translated to the functional currency.

The fluctuation columns consider how much the right-of-use asset has changed due to the exchange rate changing.

Calculating all the fluctuations, the final columns with the purple header will reflect the adjusted payment, ROU, and interest for the functional currency.

The next section in the report labeled in green is the translation from Functional Currency to Reporting Currency.

Please note: The reporting currency isn’t labeled as a column due to it being selected in the options menu prior to creating the report.

This section is smaller because it does not include historical information. It does, however, include the exchange rates, and any fluctuations on the payment, ROU, and Interest. As well as the adjusted rates for each. (14:54)

Currency Table: Spot Rate vs. Average Rate

In this video, we will discuss what a currency table is, and the differences between spot rate and average rate.

To access the currency table, click on the tools icon and select Administrator tools to open the admin window.

Under Conversion Rates, select Currency to open the table.

Once open, a list of different currencies added to the platform are displayed here.

Please note: You can bulk import currencies using the Import Currencies function in the Tools section of the Administrator window

Inside the source currency table, it is important to set up the relationship between the source currency, in this case it is US dollars, to the target currencies to determine the various rates between the two.

In this table it is important to point out the following:
• The Spot Rate – The actual exchange rate at any point in time. This rate may be different at a different time.
• The Average Rate – always applies to a month. It is essentially the average of all the individual spot rates throughout the period of the month.

These are important because each value will need to be translated or remeasured using the rate based on their nature.

For example the right of use asset and liability values. These are on the balance sheet, which is a snapshot of a particular point in time. For end of month balance sheets, it will show the specific values for the last day of the month only. So it is appropriate to translate or reameasure those values using a spot rate.

However, an interest rate is an expense over a period of time within the P&L statement. It is not appropriate to use individual spot rates because it is just used for one date instead of all the dates of the month. So in this case, we would translate or remeasure using average rates.

How does the platform use this information?

Each record will establish an effective date which can mean different things for a spot rate than it does for an average rate.

For a spot rate, it means that rate is going to apply as of the date and will continue to apply for every transaction up until a new spot rate is entered. When a new spot rate is entered, a new effective date is created and any transaction after that new effective date will apply the new spot rate.

Please note, the spot rate can be updated frequently.

The average rate on the other hand, is the average for a period of time. The system will look for the last average rate that has been entered for any particular month and that will be applied to any translations or remeasurements.

For example, at the beginning of the month the average rate entered is 1.33. However, later in the month that rate is changed to 1.35, any remeasurement or translation done in that month will use the newer, 1.35 rate. This means there can only be one average rate for a month and it will always take the most recent rate entered into the platform.

It is important to note, that since the system uses the most recently updated average rate, if for example, a rate is entered in April, and nothing is updated until October, the months of May-September will use the value entered for April. In October, the new rate will apply.

Currency Table: Entering the Data and Best Practices

In this video, we will discuss best practices on entering data into the currency table.

It is recommended that if the company uses their own rates, that they do not use the “Import Rates” button located here, but rather, use the import template to bulk load the selected rates into the system. Why not use the “import rates” button if the company uses their own selected rates? Because the rates with the auto importer may be different than what the company is currently using in their ERP and other systems. This is why bulk importing those values will help keep everything the same across the board.
Next, it is recommended that companies enter in new information at the last day of the month. That way any updated rates will be capture for the full month following the change. This will alleviate any timing issues where the spot rate may have changed. This is because the effective date also includes a specific time.

For example. Instead of entering the new rate on October 31, a user enters the new rate at 1PM on November 1st. Since half of the day is gone, any transactions prior to 1PM will be using the old spot rate, and any transactions past 1PM will be using the new spot rate. By entering new rates.

Please note, this method is a recommendation only. The company is free to enter in rates at any time with the understanding of the timing of when the new rate is applied.

It is also possible to edit a particular rate.

For example. If someone entered in a new rate but due to the date and time of the entry it was giving issues. They do not have to delete and start over again. They can simply come to the entry, click Edit Rate and change whatever was causing the problem. In this case, it was the effective date and time. Once the edits are complete, click save.

Key Takeaways

This concludes the video on functional currency and currency tables.

Remember…
• Contact support to turn on functional currency inside your platform
• Functional Currency is the currency that the company does business in. This can be different than the local currency
• A spot rate is a single point in a time where average rate is the average of a time period
• It’s best practice to change rates at the end of the month
Thanks for watching. Any questions, suggestions, or feedback can be sent to support@visuallease.com

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.

Intro

In this video, we will dive deeper into Lease Accounting Impairments and Abandonments by covering impairment and partial impairments as well as partial abandonment by providing real-world examples.
By the end of this video you will learn:
• What is an impairment and how does it reduce the value of an asset?
• Creating a modified impairment as a future termination (Scenario)
• What are Abandonments – aka – Future Impairments
• And How to create a partial abandonment

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

Advanced Impairments

In this video, you will learn the difference between a full and partial impairment and how it reduces an asset over time.

Before we get started, let’s cover a little bit of background regarding impairments.

Because of the new ASC842 and IFRS 16 standards, all leases must be on a company’s balance sheet. There needs to be a reflection that there is an obligation to pay the rent every month for a predetermined period of time.

A liability is an obligation in the company and an asset is something of value that the company has for its business use.

Because of how double-entry accounting works, if you have a liability on the books, you have to have a corresponding asset, which is the Right of Use Asset.

But what happens when the company no longer has a need for the asset in its business use?
• For example, a Totaled Car
• Or, most likely, a Real Estate asset that is closing a location

If a restaurant chain has a location that is closing, it does not mean the restaurant no longer have to pay rent, but the asset (the restaurant location) doesn’t have any value for the company as a whole any longer. The company will want to do some accounting to move things around for that shuttered location. This is due to the revenue the company generates vs. the cost of generating that revenue, part of which is rent, where analysts can evaluate the health of a company. By continuing to count the rent for the shuttered location, it will make the company not look so healthy.
As result, the company will want to designate that expense as a non-operating expense. An impairment calculation needs to be completed in order to reduce the value of the asset (the shuttered location), and then using other accounting to move the liability into a non-operating account.

To learn more about creating a full impairment, see our VLU video <Lease Accounting: Impairments>

(3:00) To begin, I’ve gone ahead and created a full impairment calculation for this record. When creating the impairment, I set the impairment to be 100% the value of the asset.

On the lease accounting page, you can see there is the initial calculation that was created and also, the impairment of that calculation, which is a type of remeasurement calculation.

After checking the box for the initial calculation and the full impairment, we can see on the lease schedule, the lease payments, here, and the right of use asset is established here. There is also the liability that will be reduced over time. At some point, the impairment is conducted.

The right-of-use asset is written off, bringing the value down to 0. This prevents any further amortization but the liability remains the same since the company is still on the hook for those future payments. But we now show the asset value being reduced to 0 after the impairment.

Since there is no longer an amortization component of the schedule, it will impact the straight line rent. Before the impairment took place, the straight line rent was correct and true, however, after the impairment, the straight line rent will be equal to the interest calculation. The liability will continue to reduce until the lease ends.

You will see in the journal entries associated with the impairment calculation the right-of-use asset is reduced as a credit in the journal entry. However, there is no off-setting liability reduction. Instead, the whole thing is written off at a point in time as a loss on impairment.

The case we just finished is for a full impairment and is not the typical type of impairment. Instead, most companies will need to impair only part of the asset. The calculation needed for partial impairments requires information not saved in Visual Lease and must be done outside of the VL platform. However, Visual Lease can support hypothetical calculations to assist in generating the appropriate values needed for the calculation.

For example, a company sublets a space. Because it is being subleased, the asset is drawing income and has value but it may not be the full carrying cost. As a result, the company will need to know what that sublease income is, how long the space will be empty before the sublease tenant moves in, the cost of moving equipment out, etc…

In visual lease, a company will create a partial impairment as an estimate, to help determine that the lease has to be impaired by a certain amount.

The example can be seen here, where we’ve impaired this asset by $1.5 million . When clicking on the initial calculation and the impairment, you will see that the of use asset amount and we are reducing by $1.5 million dollars which leaves us with $377,606 dollars for the Right of use asset after the impairment is completed.

However, it is important to note: as mentioned before, straight line rent treatment will be lost at the time of the impairment. Instead the amortization will be straight lined every period by adding the interest calculation

The remaining ROU will still need to be amortized down over the remaining term of the lease.

Companies that have impaired a calculation will need to periodically re-evaluate the impairment, typically at the start of the next fiscal year. They will review the impairment to determine of the assumptions made in the impairment were correct. In some cases, further impairment may be needed.

As you can see we impaired this calculation on 5/31/2025. At the end of 2025, we will need to re-evaluate it and realized we will need to impair it for an additional amount of say $100,000.

To complete this, simply run another impairment calculation with a fixed dollar amount and make the effective date one year after first impairment.

Please note: The impairment only remeasures the asset, it does not remeasure the liability.

After the new impairment is completed, the lease schedule will reflect the reduction. We started with $345,772 and now the right of use is showing $242,540. The term has not been shortened, the liability has not been relieved. We have only further written down the asset.

In the journal you will see the impairment amount as a credit for the ROU and a debit of the same amount for Loss on impairment.

It is important to note: According to ASC 842 rules, Once an asset is impaired, it is impaired forever.

Modified Impairment as a Future Termination

In this video we will discuss how to utilize an impairment as a future termination.

Imagine a landlord for a shopping center, and one of the tenants is closing operations and does not have a continuous operation clause in their lease. The tenant can shutter operations but will still have to pay rent until the term is up or a new tenant fills the space.

The problem for the landlord is that the viability of the shopping center is now somewhat reduced since there will be a vacant space. This is because shopping centers have stores that complement each other and draws a certain amount of traffic.

If another tenant rents the space, pays rent, and ultimately helps the health of the shopping center, the landlord will let the original tenant out of the lease. But what if the new tenant will not move into the space until a future date?

This situation will require a future termination of the lease. In order to do this, instead of running a termination calculation, a modification of an impairment is created to reduce the liability down at a specific date which will shorten the term of the lease. This effectively becomes a future termination.

In the schedule, you can see the date of the modified impairment begins, where the ROU asset is reduced and a large chunk of the liability is burned down. In this case, the modified impairment starts on 1/2026 <or whatever date> and you see in the schedule how it reduces everything by 12/2025

In the journal, you will see in the month the term is shortened, there is a gain on the modification, which is essentially the termination action that reduces the long term liability allowing the lease to be brought to an early conclusion.

Abandonments

In this video we will discuss abandonments and how to calculate a partial abandonment.

Before we get started, it is important to define the difference between an Impairment vs. an abandonment.

An impairment means that a company is recognizing the loss of the value of the asset today.

An abandonment recognizes that a company will lose value of the asset in the future. In other words, an abandonment is essentially a future impairment.

To demonstrate. Let’s say a company sets up a lease with an initial value of “33,250” a month and it increased to a certain point in time where the premise is partially abandoned, the payments then split to “$20,000” for part of the lease that will be kept and $16,333 to abandon.

In order to see those results, we must run some calculations in the lease accounting section.

The first thing that needs to be done is to run a modification of the initial calculation to represent the start date in which there will be a partial abandonment.

When looking at the schedule, the payments will reach a point in time where the abandonment takes place. In this case it is the start date of the modification. After the partial abandonment, the lease payment will be $20,000 on the schedule, part of the right of use asset and liability is reduced, The new schedule will continue amortizing for the remainder of the lease term.

The journal entry for this particular entry will show the reduction of the ROU asset and the reduction of the liability. There is no gain or loss associated with this since it was split.

The next step is to create a new abandonment portion with the start date being the same as the modification and the end date at the end of the month. This will create an abandonment schedule 1 month before the premise is actually abandoned.

Next, you will create an abandonment of the abandonment with a decision date (which is the start date) to start the day after the end date of the original abandonment. So in this case, the original abandonment ends on 1/31/23 and the abandonment of the abandonment begins on (2/1/23). Select no for “Asset Previously impaired”. Then select “Loss of Straight Line Lease Cost” in the Go Forward accounting section. A salvage value can be entered for things like vehicles, but since this is real estate, we will leave this blank. The cease use can be a future date (7/31/23).

What happens in the schedule for the abandonment of the abandonment is the amortization is accelerated between the dates of 2/1 and 7/31 so that on 8/1 when the premises is abandoned, there is no more right of use asset. A result of this is a high amortization during the reduction period which causes a high straight-line rent to be displayed. After the abandonment, the straight-line rent will only show the interest calculation.

Key Takeaways

That concludes our course on advanced Impairment and Abandonments in the Visual Lease platform.

We reviewed:
• What an impairment is and how to create a partial impairment
• How to set up an impairment as a future termination
• The difference between Impairments and Abandonments
• And how to create partial abandonments.
Thank you for attending this course – any questions, suggestions or feedback can be sent to support@visuallease.com

Introduction

Welcome to Evergreen Lease training with VLU. This course is designed to give you a deeper understanding of what evergreen and month-to-month leases are and how to administer them within the Visual Lease Platform.

By the end of the course, you should be able to:
– Understand what an evergreen lease is.
– Understand how to administer month-to-month leases.
– How to administer autorenewals.

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

Administration of Month-to-Month Leases

In this video, we will discuss how lease administration applies to evergreen leases within the visual lease platform.

Although no action needs to be taken for automatic renewal, it is not considered a best practice from an administrative perspective. It leaves too much room for doubt. That’s acceptable for month-to-month tenancies, as they get clearly flagged with that status. Autorenewals require more work, though.

Evergreen leases are just leases that automatically renew if no action is taken. They are not necessarily the same thing as month-to-month leases. While month-to-month leases are evergreen, not all evergreen leases are month-to-month. For example, a lease with a one-year term, which is automatically renewable forevermore, is evergreen but year-to-year.

What makes a lease evergreen is that, in the absence of any action by either party, the lease renews for an additional term. For the lease to expire, one party must give notice of their intent to end the term. Which party may give notice depends on the terms of the lease; it’s usually the lessee but the lessor may have the right to terminate as well.

A month-to-month lease has three major items that need to be addressed:

1. its own schedule must be created after the initial lease has concluded.
2. Aa month to month schedule should be a short-term lease type.
3. If setting up a mid-month payment calculation, ensure the prorate lease payments is checked, and the start date is any date of your choosing within the month. Checking the box will reduce the straight-line rent expense and display a deferred prepaid rent amount, which we don’t want on a month-to-month lease. The easiest way to avoid this situation is to start your month-to-month schedule at the beginning of the month.

Begin by opening a lease record. For a month-to-month lease, the administrator should set the General Tab’s Key information section to “Is Month-to-Month” by checking the box. Change the expiration date. This can be set to any value desired. As a best practice, put this date in the next budgeting cycle, as that is when the asset user is most likely to make objective use of the continued need for the asset.

Save the changes. The month-to-month lease on the side panel will indicate “yes” since we checked the box.

In the date section. You will see where it said Expiration Date will now display the forecast expiration date, which is a critical date for reporting. Having the forecast expiration date to prevent leases from going evergreen.
Next, go to the Financial Entries and ensure the necessary financial entries have the End Date fields left blank. This permits any change to the forecast expiration date to apply to the rent payments.

Go to the Lease Accounting tab and create your month-to-month schedule. Ensure that the lease type is short-term. This can be done by selecting the status in the accounting information section of the sidebar.

Accounting schedules may now be created for as long as necessary. If no increases are scheduled, the cash expenditure and lease expense should match each month.

When terminated (or if a new long-term lease is created), just run an END CALCULATION on the short-term schedule. There is no balance sheet impact.

Auto Renewals

In this video, we will discuss auto-renewing leases, naming conventions, and the general administration of these types of tenancy.
Autorenewals are options to extend the term of the lease. They vary from an ordinary option, in that an option normally requires notice be given to the other party of the intent to exercise the option.

With an autorenewal, notice must be given to NOT exercise the option. The lack of any notice has the same legal force as affirmatively exercising the option.

Please note: Accounting for autorenewals is just like accounting for any other option. Users should determine how many autorenewals they deem as likely to be exercised and calculate accordingly. Modify the terms as conditions warrant.

To begin, open a lease record and navigate to the clause tab. Ensure that Term, Use & Occupancy is added, with the options list checked.

Our best practice for entering options is to use a naming convention to identify the type of option, the number (if more than 1) out of a total number. The first of 3 regular renewal options would be titled “Renewal Option (1 of 3)”. An evergreen option does not have an upper limit, but the same sort of naming convention could be used. For example, “Autorenewal Option (1 of Infinite)” is a possibility.

Each autorenewal option will have a new commencement and expiration date, as well as an exercise window. While the function might be the opposite of a normal option, the function is the same. Instead of stating, “Lessee has the option to renew the lease for an additional one year term, provided Lessee gives notice to Lessor not less than 90 days before the expiration date”, the language will likely be “This Lease shall automatically renew for an additional one year term unless Lessee gives notice to Lessor not less than 90 days before the expiration date of its intent to terminate the lease”.

To avoid doubt, it is recommended to acknowledge in the lease record that the issue was reviewed and an affirmative decision to permit the autorenewal is recorded. This can be done with a document upload but, more importantly, should be done by exercising the option on the sidebar under lease options.

Once the information has been added, click save and close, and your autorenewal option will display.

Key Takeaways

This concludes our course on evergreen leases and how to treat them in the VL Platform.
Remember….
• Evergreen leases can be for any length of time, so long as they automatically renew. This can be fore month to month or year to year.
• For month-to-month leases, check the box “is Month to Month” when editing in the General tab of a lease record.
• For autorenewals, notice but be given to NOT excise the lease option.

Thank you for attending this course – any questions, suggestions or feedback can be sent to support@visuallease.com

Welcome to training with VLU. This course is designed to cover the basics behind creating new calculations in Visual Lease’s lease accounting module. Our goal is to ensure you have what you need to gain compliance with the newest Accounting standards published by FASB, IASB and GASB.

By the end of this course, you will learn:

• The various inputs of a lease accounting calculation, and how to create a Lease Schedule and journal entries from these inputs.

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

To get accurate information out of Visual Lease, we have to ensure we put complete and accurate data into it. That is especially true for lease accounting calculations, which pulls inputs from various fields within your lease record. The integrity of those inputs is critical to producing accurate calculations. Let’s review some together.

Before we get started it is important to note that the options shown on this screen may be different based on your configuration.

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

The Record type 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.

Now, let’s take a brief look at your financial entries. Let’s click on the Financials Tab.

Underneath that, you’ll see a series of sub-tabs, you’ll look for Entries.

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.

Finally, let’s take a look at your lease options. You can find these in the Clauses tab.
To navigate here, select Edit from the Options List, open the Option Details, and select Edit from the action menu here.

If they are marked as “likely to be Exercised”, they will impact the term of your lease accounting calculations. Remember, though, we are entering new calculations in this example. The threshold for “Likely to be Exercised” is fairly high, so it is unlikely to be met at inception unless the original lease term is quite short.

Now that we reviewed key information throughout the lease record, let’s look at how to generate a lease accounting calculation from the Lease Accounting Module.

It can be found under the Financials tab, if you click on Lease Accounting. This is where all of your lease accounting calculations will be created and stored.

You can find all of your created and stored calculations by selecting the Financials tab and then selecting lease accounting
Let me show you around. All lease accounting actions can be completed by using the Create Calculations button on the top-right of the screen, and the Kebab in each row of a calculation.

Or by clicking here to edit, remeasure, and perform other actions for existing calculations.
But before we explore that further, let me show you the other areas of this module.

Beneath that, 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. First, though we need to create a calculation.

Now, let’s walk through how to create a FASB 842 lease accounting calculation. Once you understand how this works, you will easily be able to explore more complex scenarios and calculations in this module.

To get started, click Create Calculations.

As you can see, you can create a new calculation, or you can create a transition calculation. A new calculation runs from the commencement date of the lease. A transition calculation is what you’ll create when the lease already exists on your books under the former accounting standard. In this course, we will focus on creating a new calculation from commencement.

For now, let’s select New Calculation. You will see the Calculation Wizard appear which will walk you through each step of creating a calculation.

You will see the Add New Calculation window open. The first step is to specify the accounting standard I wish to apply. In my configuration, I can apply either the old or new standards for all three major standards boards. For this example, we’ll use the FASB 842 standard.
Then, you will specify the calculation status.

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 with the FASB’s updated guidance that opened up modified retrospective to virtually all companies, the platform’s functionality on this is effectively disabled.

Use the Schedule Upload checkbox to enable 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.
Step 2 will allow you to specify a calculation name and period. We recommend that you name your calculation to make it easily distinguishable. In this case, we’re just using the default name. For this example, I will simply name the calculation after the standard itself.

The platform will use the commencement date and the expiration date as the start and end default values. The commencement date on the General Tab is the LEGAL commencement date, though. Please note that the accounting commencement date is the date of possession, which is likely could possibly be different than the legal commencement date. If this is the case, you will need to override that default value with the possession date.

Always use the appropriate date for your schedules depending on the circumstances of the lease. The assumed end date is going to default to the expiration date of the lease, which is stored 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.

Step 3 of the wizard is where we get the opportunity to input various values that are not housed in other areas of the lease record, that will have an impact on your calculation.
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 schedules standards is based off of the time value of money. If you’re accelerating those payments by one or even a few months that’s going to have an impact on those assets and liability values; go ahead and take advantage of that.

Let’s go ahead to step 4, where you enter the discount rate. Your platform can hold a schedule table of discount rates based upon organization, country, currency, lease term, etcetera. The platform will automatically look at all of that information and then select from the table the appropriate rate. But, you don’t have to use the number that the platform has come up with, you could select something different. If you do override the populated default rate, the platform will ask you for an override reason. We’re always building an audit trail for any time that you’re making a variation from the standard or default treatment. I’m going to just take us back to our default rate.

Sometimes, a lease may explicitly state a discount rate. This is rare, but you may see this happen with vehicles or equipment. If so, you must enter that defined rate here.

In step 5, we select which financial entries are going to be included—and how they are going to be included—in the calculation.

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). Those flagged as Lease Payment will obviously be treated as lease payments, the basis for the schedule; at least one such entry is required. 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.

By default the system will only show those financial entries that factor into accounting schedules or reporting, but I can check the Show Excluded box to see all the other payments for this lease, which are set to be excluded from this calculation as a default.

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.

Step 6 is the lease type test. Here’s where, in the FASB 842 world, we apply the lease type test to determine whether it’s an operating or a finance lease. Questions one, two, and five are subjective. You must make the determination whether it’s a yes or no and provide a reason why you selected yes.

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.

We should spend a minute here talking about fair market value and useful life. The useful life for this lease is 39 years because this is a real estate lease. We use 39 years because that’s the amortization period for real estate in the US Tax code. You may have set up other default values for other Record Types. Regardless of the default value, you should enter the life specific to the asset. It’s important for the Lease Type Test, and also used for determining the amortization of assets purchased at the end of the lease.

In a real estate transaction, you’re often going to leave the Fair Market Value field blank. The rule is if it’s difficult to ascertain the fair market value of the distinct asset, you don’t have to fill that in. For example, if this were an office lease, say it’s for the 50th floor of the Empire State Building, you can’t just buy the 50th floor. You would have to buy the whole building. I can’t determine what the value of that single floor of the building is, so I would just leave this fair market value here as a blank or 0.

If any of the five questions answer YES, the lease is determined to be a Finance Lease, or a Capital Lease under one of the older standards. It is possible to override the calculated value for these questions, and also possible to just override the type. For audit trail purposes, any time you do so, you will be asked for an Override Reason.

Once this is saved, you will see the rest of the sections on the Lease Accounting Page appear.

The details of this calculation appear in the Calculations section.

If I select “Show More” I’ll see all the inputs that went into creating this individual schedule.

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.

Please note: The calculations section will default to the list type view.

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.

If I select “Show More” I’ll see all the inputs that went into creating this individual schedule.

The lease schedule created will contain all the necessary detail including the lease payments, straight line rent, right of use asset, amortization, interest and liabilities.

The schedule is then the basis of creating the Journal Entry Summary at the bottom of the page. The Journal Entries provide the linkage to feed these details to your ERP system.
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 record type, 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.

GASB 87 calculations are similar to FASB 842 and IFRS16 with a few caveats in the calculation wizard. This video will demonstrate how to create a new GASB 87 calculation in the Visual Lease platform.

You can find all of your created and stored calculations by selecting the Financials tab and then selecting lease accounting.

Let me show you around. All lease accounting actions can be completed by using the Create Calculations button on the top-right of the screen, and the Kebab in each row of a calculation or by clicking here to edit, remeasure, and perform other actions for existing calculations. 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. First, though we need to create a calculation.

As you can see In General, you can create a new calculation, or you can create a transition calculation.

However, It is important to note, all GASB 87 calculations must be a NEW CALCULATION. If you happen to select Transition, the option to select GASB 87 as an accounting standard will be unavailable.

You will see the Add New Calculation window open. The first step is to specify the accounting standard you wish to apply. For this example, we’ll use the GASB 87 standard.
Then, you will specify the calculation status.

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.

Step 2 will allow you to specify a calculation name and period. We recommend that you name your calculation to make it easily distinguishable. In this case, we’re just using the default name. For this example, I will simply name this after the standard.

For the GASB 87 accounting standard, it is important to note that if the lease commenced prior to your GASB 87 adoption date, you will should override the Start Date field with the GASB 87 adoption date. For leases that commenced after the adoption date, leave the Start Date as is.

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.

Step 3 of the wizard is where we get the opportunity to input various values that are not housed in other areas of the lease record, that will have an impact on your calculation.
For the GASB 87 accounting standard, it is important to note, that in this step, IF your lease commenced prior to your GASB 87 adoption date, select Yes from the Transition Drop-down. If it commenced after the adoption date, leave the Transition field as NO.
Please note: If the transition drop-down is selected as YES then Initial Pre-paid Rent, Initial Unamortized Lease Incentives, and Initial Unamortized Direct Costs will become INACTIVE, and the corresponding fields labeled “at transition” will be editable.

These fields include:

• Prepaid Rent at Transition which is the amount pre-paid as of the transition date and will be applied to the first due rent under the lease and thereafter until the entire prepaid amount is reached

• Unamortized Lease Incentives at Transition and Unamortized Direct Costs at Transition are amounts paid or received before the start of the schedule. Values entered in these fields should be the unamortized portion as of the transition date, not the full amount.

• Deferred Rent Balance at Transition is an existing balance brought in from the straight-line rent schedule. This field is critical to establishing the proper straight-line rent amount.

I’m now going to set the Transition field option back to “No”.

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.

Everything in these new accounting schedules standards is based off of the time value of money. If you’re accelerating those payments by one or even a fews months that’s going to have an impact on those assets and liability values; go ahead and take advantage of that.

Please note that if the Transition dropdown is selected as “No,” these corresponding transition fields we just discussed will be unavailable.

Let’s go ahead to step 4, where you enter the discount rate. Your platform can hold a schedule table of discount rates based upon organization, country, currency, lease term, etcetera. The platform will automatically look at all of that information and then select from the table the appropriate rate. But, you don’t have to use the number that the platform has come up with, you could select something different. If you do override the populated default rate, the platform will ask you for an override reason. We’re always building an audit trail for any time that you’re making a variation from the standard or default treatment. I’m going to just take us back to our default rate.

It’s rare, but a lease may explicitly state a discount rate. You may see this happen with vehicles or equipment. If so, you must use that defined rate and enter the information here.

In step 5, we select which financial entries are going to be included—and how they are going to be included—in the calculation.

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). Those flagged as Lease Payment will obviously be treated as lease payments, the basis for the schedule; at least one such entry is required. 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.

Be default the system will only show those calculations that factor into accounting schedules or reporting, but I can check the Show Excluded box to see all the other payments set to be excluded from this calculation as a default.

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.
In step 6, for GASB 87 standards, enter a useful life in years or months (if applicable). We default useful life to 39 years as that is the current depreciation period for commercial real estate under US tax law. You should select whatever is appropriate for your asset. If it is exactly 39 years and 0 months, enter 0 in the Useful Life (Months) field.

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.

Once this is saved, you will see the rest of the sections on the Lease Accounting Page appear.

The details of this calculation appear in the Calculations section.

If I select “Show More” I’ll see all the inputs that went into creating this individual schedule.

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.

Please note: The calculations section will default to the list type view.

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.

If I select “Show More” I’ll see all the inputs that went into creating this individual schedule.

The lease schedule created will contain all the necessary detail including the lease payments, straight line rent, right of use asset, amortization, interest and liabilities.

The schedule is then the basis of creating the Journal Entry Summary at the bottom of the page. The Journal Entries provide the linkage to feed these details to your ERP system.
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 record type, 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 concludes our course on the basics behind building a lease accounting calculation. We’ve reviewed the data required to create your schedules, and how to create a new calculation within the lease accounting module.

Thank you for attending this course. Any questions, suggestions, or feedback may be sent to training@visual lease.com.

Welcome to training with VLU. This course is designed to cover the basics behind creating an Impairment remeasurement calculation in the Visual Lease lease accounting module. Our goal is to ensure you have what you need to gain compliance with the newest Accounting standards published by FASB, IASB and GASB.

By the end of this course, you will learn about:

• The location and importance of key lease accounting inputs.
• How to create an impairment remeasurement calculation for an existing calculation.

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

To get accurate information out of Visual Lease, we have to ensure we put complete and accurate data into it. That is especially true for lease accounting calculations, which pulls inputs from various fields within your lease record. The integrity of those inputs is critical to producing accurate calculations. Let’s review some together.

Before we get started it is important to note that the options shown on this screen may be different based on your configuration.

First, let’s visit the General Tab. 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.

Now, let’s take a brief look at your financial entries. Let’s click on the Financials Tab. Underneath that, you’ll see a series of sub-tabs, you’ll look for Entries.

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.

Finally, let’s take a look at your lease options. You can find these in the Clauses tab. If they are marked as likely to be exercised, they will impact the term of your lease accounting calculations. Remember, though, we are entering new leases in this example. The threshold for “Likely to be Exercised” is fairly high, so it is unlikely to be met at inception unless the original lease term is quite short.

Now that we reviewed key information throughout the lease record, let’s take a look at remeasurement calculations. There are various type of remeasurement calculations you can generate within the lease accounting module, but for this video, we will focus on the impairment remeasurement calculation.

This type of remeasurement is required if there is a significant decrease or complete loss of value of the asset, or an event that damages the asset or reduces your ability to use the asset. In those cases, you will need to complete an impairment remeasurement.

You can find all of your created and stored calculations by selecting the Financials tab and then selecting lease accounting.

Let me show you around. All lease accounting actions can be completed by using the Create Calculations button on the top-right of the screen, and the Kebab in each row of a calculation, or by clicking here to edit, remeasure, or perform other actions for existing calculations.

But before we explore that further, let me show you the other areas of this module.
Beneath that, the screen breaks into various sections.

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

Before we walk through creating an impairment remeasurement, a calculation must already exist on the lease.

To get started, find the calculation from the list you wish to complete a recalculation, and click here…to access the action menu. Select Create Remeasurement Calc from the list.

The Create Remeasurement Calculation window will open.

Please note: The financial entries used to calculate an impairment are in the same state as those used in the prior calculation being impaired. This is distinguished from a modification or termination, in which amounts may be different or additional expenses such as a termination penalty may be added.

Select Impairment from the Type of Remeasurement list, and then specify the effective date. Select either the Amount or Percentage of the impairment and then enter a value. Please note: The Amount cannot be greater than the ROU Asset Value at Remeasurement.

Once all the options have been selected, click Create Remeasurement.

You will see the Calculation Wizard appear which will walk you through each step of creating an Impairment.

The first step of the wizard is to specify the accounting standard I wish to apply. I can apply either the old or new standards for all three major standards. For this example, we’ll use the FASB 842 standard.
Then, you will specify the calculation status.

The first step of the calculation wizard you will need to specify the calculation status. Please note: Since this is an existing calculation the accounting standard is already selected and cannot be changed during a recalculation measurement. Therefore the standard drop-down list is inactive.
You will, however, need to specify the calculation status.

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.

Please note: 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 in a message located here.

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

Step 2 will allow you to specify a calculation name and period. We recommend that you name your calculation to make it easily distinguishable. In this case we’re just using the default name.

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.

Once your selections are made, click save.

Once this is saved, you will see the rest of the panels on the Lease Accounting Page appear. The details of this calculation appear in the Calculations section.

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.

Note: The calculations section will default to the list type view.

Note that the impairment has a start date that you entered in the wizard.

When viewing the Impairment schedule you will see the new calculation including the amount or percentage loss of value to the asset.

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.

Note: The calculations section will default to the list type view.

If I select “Show More” you’re going to see all the inputs that went into creating this individual schedule.

Clicking Show More in the lease schedule will display all the necessary detail, including the lease payments, straight-line rent, right of use asset, amortization, interest and liabilities.

The schedule is then the basis of creating the Journal Entry Summary at the bottom of the page. The Journal Entries provide the linkage to feed these details to your ERP system.

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 then 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 concludes our course on an impairment remeasurement calculation. We’ve reviewed the data which are required to create your schedules, and how to create an impairment recalculation within the lease accounting module.

Remember…

• A calculation must exist on the lease in order for an impairment remeasurement calculation to be completed.
• You will need to run an impairment recalculation if there is a significant loss of value to the asset, including damage or usability.
• The amount or percentage of ROU Asset impairment cannot be greater than the ROU Asset Value at Remeasurement or you will receive an error message.

Thank you for attending this course. Any questions, suggestions, or feedback may be sent to support@visuallease.com.