Property Manager

Tenant/Lessee Accounting for IFRS16 and ASC842 changes.

Creation Date: 12-Jul-2018

Last Updated:30-Mar-2020
Document Ref:
Version: 2A

Organization: Oracle India Private Limited.

Contents
1.Introduction ............................................................................................................................................. 4
2.Major Changes in Reporting.................................................................................................................. 5

3.Effective Dates ......................................................................................................................................... 5

4.Definitions ................................................................................................................................................ 6

5.Accounting Treatment between IFRS and ASC 842 ........................................................................... 7

6.Solution Approach .................................................................................................................................. 8

7.Setup / Transaction Changes ................................................................................................................. 9

7.1 Define Interest Index ....................................................................................................................... 9

7.2 System Options............................................................................................................................... 10

7.3 Changes in lease header form while creating a lease................................................................ 11

7.4 Changes in lease Payment term form ......................................................................................... 13

7.5 Defining Foreign Currencies ........................................................................................................ 14

8. Transition Approach / Preparatory work to migration .................................................................. 15

8.1 Continue without Phase 1 and Phase II Solutions..................................................................... 15
8.2 Uptake the Phase I solution and generate the reports only ..................................................... 15
8.3 Uptake the Phase II solution ......................................................................................................... 19

9. Strategy for Migration: .................................................................................................................... 21

10. Reports ........................................................................................................................................... 22
10.1 Portfolio Summary Report ...................................................................................................... 22

10.2 Portfolio Detail Report ............................................................................................................ 25

10.3 Lease Detail Report .................................................................................................................. 27

10.4 Lease Analysis Report ............................................................................................................ 30

11. Options .......................................................................................................................................... 33

12. View Transaction ......................................................................................................................... 35
13. Transaction Flow / Period end activities under new Regime ................................................ 38

14. Foreign Currency Leases ............................................................................................................. 43

15. Formulas Applied ........................................................................................................................ 45

16. Retro dated leases ........................................................................................................................ 51
17. Enhanced Edit / Amend activities for existing Lease.............................................................. 55

18. Option Cancellation ..................................................................................................................... 57

19. Lease Re-classification ................................................................................................................. 61

20. Interest Index change................................................................................................................... 64

21. Periodic Amortization & Daily Interest calculation ................................................................ 68

22. Daily Amortization & Daily Compound Interest .................................................................... 70

23. Payment Term Linking................................................................................................................ 72

24. Lease Extension ............................................................................................................................ 77

25. Lease Early Termination ............................................................................................................. 80

25.1 Current period .......................................................................................................................... 80

25.2 Past dated Termination ........................................................................................................... 84

25.3 Future dated termination ........................................................................................................ 87
26 Amortization Until Option End Date ........................................................................................ 88
27 Equipment Lease .......................................................................................................................... 91

27.1 Prerequisites.................................................................................................................................. 91
27.2 Setup .............................................................................................................................................. 93

27.2.1 Term Template ...................................................................................................................... 93

27.2.2 Discount Rate Index .............................................................................................................. 94

27.2.3 System options....................................................................................................................... 95
27.3 Leases ............................................................................................................................................. 96

27.3.1 Leases ...................................................................................................................................... 96

27.3.2 View transactions ................................................................................................................ 100

27.4 Reports ......................................................................................................................................... 100

28. Transaction flow / Period end process under equipment lease........................................... 100

28.1 Create a new lease agreement .................................................................................................. 101

28.2 Perform edit / amend activities for existing Lease ................................................................ 102

28.3 Approve the Schedules for the period .................................................................................... 104

28.4 Export the lines to Payables ...................................................................................................... 105

28.5 Run the Transfer normalized lines to GL program ............................................................... 106
 28.6 Run Create accounting program. ............................................................................................. 107

29. Reports ............................................................................................................................................... 107

30. Foreign Currency Equipment Leases ............................................................................................ 108

31. Approval workflow ......................................................................................................................... 108

32. List of APIs available for Equipment Lease ................................................................................. 108

33. Few calculation Scenario’s ........................................................................................................ 109

33.1 When the schedule day is in the middle of the month ..................................................... 109
33.2 When a new Payment term is added ................................................................................... 109

33.3 When calculation frequency is ‘Daily’ ................................................................................... 110

33.4 When Proration rule is 360 ................................................................................................... 111

33.5 When Proration rule is Days/Month ..................................................................................... 112

34. Reference Documents ................................................................................................................ 113

1.Introduction
Recently the IASB (International Accounting Standards Board) and FASB (Financial Accounting
Standards Board) have made some major changes with respect to accounting standards for
leases. Real estate entities are required to change certain lease accounting practices to comply
with IFRS 16 and ASC 842. These new standards significantly impact the accounting for lessees
for real estate tenants, requiring them to recognize rental contracts on their balance sheets as
lease liabilities with corresponding right-of-use-assets.

The current whitepaper discusses these changes for lessee/Tenant’s accounting and designed
solution for the same in Oracle Property Manager and new Equipment leasing enhancement of
the Property Manager.

This enhancement request is capable of providing

 Complete end to end Integration with eBusiness Suite

 Complete asset management system and not a mere accounting tool
 Scalable Product and can support multi-currency/multi locations
 Single Global Instance support
 Flexible Subledger Accounting supported
 Solution enhanced with time to time Product enhancements
2.Major Changes in Reporting
As per the new IFRS changes, tenants are required to list all their lease liability details in
balance sheet along with Right to use (ROU) value of these leased assets. Prior to this change
only Finance Leases were needed to be shown on the balance sheets for the tenants.

In Addition to that they also need to book their interest expense separately. Here is a glimpse of
how the pre-Accounting and Post Accounting Changes are impacting the Profit and Loss
Account and Balance Sheet

As can be seen from the above screen shot, earlier leased assets were not part of balance sheet.
However going forward, tenants need to calculate lease liability and ROU balances and it needs
to be included in liability and asset side of the balance sheet.

On similar lines, P&L account use to have one component called “Lease Expense” as a part of
operating cost. However, going forward, the lease expense needs to be split into Amortization
of Lease expense and Interest component separately.

3.Effective Dates
US GAAP (ASC842) International GAAP (IFRS 16)
Public companies: Annual periods beginning after All companies: Annual periods beginning after
December 15, 2018 (i.e., January 1, 2019 for a January 1, 2019
 calendar year entity), and interim periods within
those years

All other companies: Annual periods beginning

after December 15, 2019

Early adoption is permitted on a retroactive basis Early adoption is permitted on a retroactive basis,
provided IFRS 15, Revenue from Contracts with
Customers is adopted at the same time

Two Year Look Back - Two year look back reporting is required to report comparative financial results
for FY2017 and FY2018—There are discussions going on for dropping this requirement

4.Definitions
 Lease Liability — This is the monetary value of the tenant’s obligation in a lease. This will
be displayed/disclosed in the tenant's balance sheet as a liability. This is calculated as the
present value of all payments due to the landlord towards rents, option amounts, one-time
payments, and so on.
 Right of Use (ROU) — This is the value attributed to the right (non-monetary) that the
tenant holds in a lease. You may consider the lease liability as the ROU with/without any
adjustments. Generally, ROU is same as liability when calculated for the first time if there
are no additional amounts contributing to additional ROU.
 Lease Expense — The total payments (cash expenses) on a lease when calculated per period.
For US GAAP purposes, this is the expense that needs to be reported as the expense for the
period.
 Amortization Expense — Amortization expense is the systematic write-off of ROU. For
IFRS purposes, the amortization expense is calculated on a straight-line basis. For US
GAAP, Amortization Expense is the difference between the interest expense and lease
expense. This different treatment of Amortization expense is limited to Operating leases in
US GAAP
 Interest Expense — Interest Expense is the financing cost component of the lease expense. It
is usually calculated by applying the internal rate of return on the outstanding Lease
Liability. For IFRS reporting, Interest Expense and Amortization expenses must be reported
as separate lines of an expenditure.
 Cash — Scheduled outflow of periodical cash to vendors (including landlord).
5.Accounting Treatment between IFRS and ASC 842
Under both IFRS and ASC 842, tenants are required to recognize most leases on their balance
sheets as lease liabilities with corresponding right-of-use assets. Under IFRS all lease
agreements are classified as Finance Leases whereas Under US GAP lease agreements can be
classified as either operating lease or Finance lease. If the lease is classified as Finance lease,
they follow IFRS 16 standards. If the lease is classified as Operating lease, they follow ASC 842
treatment of Amortization.

Finance Lease:- In a finance lease, tenants create a ROU asset by calculating the present value of
the lease expense. The lease liability is calculated as the present value of the lease payments.

As time passes, interest is calculated and applied to the liability balance; amortization of the
ROU asset is recognized on a straight-line basis. For the finance lease, both the interest accrual
and the asset amortization are recognized as expense. IFRS mandates, charging of interest
expense and amortizations as two line items whereas FASB mandates single line charge.

Operating Lease :- For an operating lease, tenants create a ROU asset by calculating the present
value of the lease expense; an associated lease liability is calculated as the present value of the
lease payments, same as a finance lease.

As time passes, interest is accrued and applied to the liability balance; amortization of the lease
expense is recognized on a straight-line basis. The ROU asset amortization is calculated as the
difference between the amortized lease expense and the interest accrual. For the operating lease,
only the amortized lease expense is amortized.

Here is an example of how the accounting is generated under IFRS and US GAP
6.Solution Approach
The solution to meet these new requirements from these accounting standards was delivered in
two phases i.e

Phase I- focuses on application enhancements for performing all calculations needed for “Look
Back” period (2017-2019). The calculated values are provided to the user in the form of three
reports- one very specific and detailed report for lease level and other two reports at portfolio
report. Users can use this information to update their financials and for comparative statement

Note - The two year Look Back requires users to “rebuild” existing Leases, to report
comparative financial results of operations from 2017 and 2018. The requirement is to:

 Calculate and report the present value of asset and liability balances;
 Calculate and report the financial streams for asset amortization, interest accrual and
lease expense

Note: Only property manager solution has Phase I solution. Equipment users directly move
onto phase II.

Phase I was provided for making

a. Available all the calculations and reports till phase II came into availability
b. Build the infrastructure for calculations
c. Report balances on the archived data

During initial phases of Phase I an archival script was also provided to enable users to take
archival of data. This archived data can then be used to run calculations on.

Phase I calculations when run in “Final” mode, would also take archival of lease data and
calculations.

Phase II- Property manager will generate accounting for various events in the life cycle of lease
from tenant’s perspective accounting.

Prerequisites:-

Property manager IFRS enhancement functionality is available on 12.1.3 and 12.2.X versions. So
to get this new functionality, apply the latest patches mention in below knowledge document

E-Business Suite Release 12: Oracle Property Manager IFRS & Equipment Lease Information
Center (Doc ID 2482062.2)
7.Setup / Transaction Changes

To meet the new reporting requirements, the below setups changes has to be done

7.1 Define Interest Index

The process of Calculation of balances/interest and amortization of expenses uses

discount rates on particular dates. User shall setup multiple Discount Rate Indexes
within an operating unit as per the need of the business.

To define the Interest Index navigate to Setup > Discount Rate Index

Here we can either query an existing Index or we can define a new Interest Index by
clicking on Create index option.

While creating a lease, based on the effective start date, system will decide the applicable
interest rate. For e.g in the above screen shot, there are two interest rates defined with
effective date of 01-Jan-2016 and 01-Jan-2017. Now if we create a lease as of 1st Jan 2018,
system will pick the interest rate of 7% as that is the latest rate applicable based on the
effective date.

The below are the important aspects of Discount Rate Index

a. You can define any number of discount rate indexes for an OU

 b. You can group your leases into some logical buckets like 10 year leases, 20
year leases etc. Then you can author discount rate index and assign it to the
leases which belong to that logical group
c. You may want to name/description on the discount rate index in such a way
that the right discount rate index gets attached by the user
d. There is also an additional fields called “Adder” rate which can be used by
the user during lease authoring. This can work as an increment/decrement to
the rate fetched by the discount rate index.
e. The rate exisint on the index on the lease commencement date is used by the
calculations for calculations of balances.
f. During few recalculations like contractions, renewals….the recalculations are
performed using new rate from the discount rate index attached.
g. As an amendment, you may also assign a different index on the lease. The
recalculation will take place as if the index change happened from the
beginning of the month. The recalculated liability is deducted from original
liability as of that date to arrive at the differential delta to adjust the carrying
values of Liability/ROU

7.2 System Options

A new section has been included in the system options based on which the accounting
events will be generated as per the Phase 2 solution.

Transition Date — On the date of transition, transition balances are calculated according to the
lease and term, and also uploaded as accounting balances. Transition date can be of Past date or
system date and if we are giving a past period transition date, there should not be any
transaction after this particular date. More to follow later in the Transition section.
GAAP Regime - You must select the compliance regime as per their compliance needs. The
available values are IFRS, ASC 842 and Both.

Primary Regime — If you select Regime Name as Both, then you must select a primary regime
as IFRS or ASC 842. The primary regime is followed for all accounting into primary ledger and
other regime accounting will be done in associated secondary ledger and will provide
accounting representation.

Calculation Frequency – The available options are

 Periodical Amortization: If you are following regular English calendars in primary

ledger, you can choose periodical calculations. Periodical calculations are suited for
customers who have a regular Calendar month for calculations and do not need daily
calculations for Interest and Amortizations
 Daily Amortization: If you are following an irregular calendar like 4-4-5, you will need
daily calculations. Amortizations are calculated based on actual days in the period and
similarly, interest amounts are calculated for the exact days in the month. You are
advised to use only the days/month convention if you are using daily calculations. Days
in an adjustment period are not taken into consideration for calculations of numbers.

Interest Method - The available options in interest method LOV depends on the value
selected in Calculation frequency.

If you have selected calculation frequency as

Periodical Amortization – The available options are Simple Interest and Compound Interest

Daily Amortization – Daily Compound Interest and Linear compound Interest

7.3 Changes in lease header form while creating a lease

As a part of this new Enhancement, 3 new fields have been introduced in Create lease
Form. They are

Accounting Method - The Accounting Method is used to capture the lease classification
for reporting, as well as the categorization of leases. The options we have is Finance
Lease and Operating Lease. The default value for this field is “Operating lease “
Before moving to Phase II solution, users will see four values here:

a. Operating
b. Finance
c. Both and
d. Exclude

After Phase II solution is enabled, users will see only operating and finance as values in
the dropdown. Users will need to enable “Both” in the system options if they want to
see/account both the representations. Similarly, if users want a lease to be excluded from
reporting, they will need to either not check the checkboxes for ROU/Liability or not
provide discount rate index.

Discount Rate Index – Assign the Discount rate type which will be applicable to the
particular lease.
 Adder Rate – This option can be used add / substract the rate derived from the discount
rate Index. For e.g the interest rate applicable as per discount rate index attached is 10%.
However for this specific lease, the interest rate applicable is 9%, then we need to enter
-1 in the adder rate column.

7.4 Changes in lease Payment term form

Even at Payment term level, below check box option has been provided for the users to
select whether they want each payment term to be considered for calculation purpose or
not.

ROU Asset- Need to check this check box if the payment term need to be included for
ROU calculation

Liability – Need to check this check box if the Payment term should be considered for
deriving the lease Liability.

Report from Inception – If report from inception is on, the cash flows from lease start
date are put to use to calculate balances. For ex, if lease start date is 01-Jan-2005, then all
cash flows from 2005 till lease end date are employed to calculate balances. You will see
all the calculations every month end only in Lease Detail Report. The portfolio reports
only report from 01-Jan-2017.
If Report from inception is off, the calculations are based on cash items on/after the 1st
day of current month/Transition month.
 Intercompany – If the lease payment term is payable to a inter company / sister
Company, need to check this check box. Even when this check box is checked, the
Calculation and streams will get generated like other normal leases.

Note – These check box has been included in Payment term template as well and even
the lease History form has been enhanced to capture these details

7.5 Defining Foreign Currencies

In property manager a billing / payment term can be entered in any other currency than the
functional currency of the ledger. In the lease work bench, by default the functional currency
value will be visible. If you want to add any other value to the Currency LOV in payment /
Billing tab, the same needs be added by navigating to Property Manager > Setup >International
>Enable Reporting Currencies
8. Transition Approach / Preparatory work to migration

When it comes to transition from current property manager system to Compliance

Accounting, we have 3 options i.e

 Continue existing normalized and AP accounting or invoices without the Phase I or

Phase II solutions.
 Uptake the Phase I solution and generate the reports only, and never use Phase II
solution (compliance accounting)
 Uptake the Phase II solution with multiple GAAP accounting (IFRS, US GAAP, and
existing normalization accounting) in primary and secondary ledgers. This option
allows you to continue with existing accounting for normalization in one of the
secondary ledgers with IFRS and US GAAP as the primary reporting.

8.1 Continue without Phase 1 and Phase II Solutions.

Under this system, there will not be any calculation of ROU / Liability balances and no
interest expenses will be calculated. Under this user will not be selecting any of the
compliance related attributes / setups and it will work as current property manager
functionality is working i.e Accounting entry is generated when AP invoice is created
and when normalization entry is interfaced to GL.

8.2 Uptake the Phase I solution and generate the reports only

Under this approach, using property manager solution, organizations can generate ROU
/ Liability balances and interest and Amortization calculation etc. and they can also
generate the reports to extract these balances. But under this approach, there will not be
any accounting entry that will get generated / interfaced to GL.

The steps for migrating from current property manager to New Compliance regime is
 Finalize the Run the Run the Run the
Update the
lease to be Setup the calculation compliance calculation
Apply the Lease
part of new system Program in reports and Program in
Phase 1 Agreements
Compliance options DRAFT verify the FINAL
Patch using the
requirement mode data mode
API

1. Apply the Phase 1 Patch

To get the new functionalities of Phase 1 to comply with IFRS / US gap
requirements, apply the latest patch mentioned in document 2482062.2.

2. Finalize the lease to be part of new Compliance requirement

The next step to migrate to the new regime, business has to decide which are the
leases they want to be part of new compliance and they also have to decide other
attributes like accounting method, Application interest rate etc. at lease level and
for each of the payment terms under these leases, they will have to decide for
which are all the payment terms they want ROU / liability balances to be
calculated, which are the payment terms which are part of intercompany
payment etc.

3. Update the Lease Agreements using the API

Once the business is ready with all the lease level attributes, they can update all
these attributes to each of their rental agreements using the
PN_UPGRADE_LEASE. UPGRADE_LEASE API. The attributes that can be
passed to this API is

Required /
Structure Attribute Name Allowed Values
Optional
accounting_method Required FINANCE,
OPERATING
discount_rate_index_id Required Valid discount
pn_upgrade_lease.lease_rec rate index id
adder_rate Optional
lease_id Required Valid lease id
 Pn_upgrade_lease. rou_asset_flag Optional Y, N, NULL
lease_terms_tbl
liability_flag Optional Y, N, NULL
rept_inception_flag Optional Y, N, NULL
payment_term_id Required Valid payment
term id

4. Setup the System Options

Once the compliance related attributes are setup for all the eligible leases, we
need to setup the transition date, primary regime, and amortization & Interest
calculation frequency etc in system options.

5. Run the calculation Program in DRAFT mode

Once all the compliance related attribute is updated at lease level and at payment
term level, we are ready to run the “Calculate ROU Asset and Liability balances
with streams” program. This is the program which calculates all the compliance
related streams under Phase 1 solution.

This program has 3 parameters

 Ledger – This program is always run at ledger level and not at operating unit
(OU)level. When it is run for a particular ledger, all the OU’s attached to
ledger will get processed.
  As of Date – Is the period for which the program is being run. For e.g if we
are doing migration in Jun-18 period, the program needs to be run for Jun-18
period.
 Mode – This program has be run in two modes i.e Draft and Final. Initially we
can run the program in draft mode to verify the calculation and post that we
can run the program final mode.

6. Run the compliance reports and verify the data

Below reports are provided as a part of this enhancement request

 Lease Analysis Report – Shows the discounted and Undiscounted liability

balances for <= one year, <= 5 years and > 5 years. This report captures
details at lease level.
 Portfolio Summary Report – This report shows the month wise ROU,
amortization expense, etc for both Finance lease as well as Operating Lease
separately and this also shows summary of liability balances, cash flows,
interest accrual etc.
 Portfolio Detail Report – This report is used to drill down the balances
arrived in Portfolio Summary Report for a particular month. This report
provides the lease level beginning and closing balances of ROU, liability,
cash flow in the month, interest amount accounted etc.
 Lease Detail Report – This report helps to understand the ROU, Liability,
Interest accrual calculated at lease level as well as at the payment term level
under that lease

7. Run the calculation Program in FINAL mode

The final step for migrating to phase 1 solution will be to run the Calculate ROU
Asset and Liability balances with streams program in a final mode. Once this
program is run in final mode, the balance for the particular period will be
archived and the same can be used for reporting at later time.
Archival is for the lease data as well as lease compliance balances.
Note –
 Once Calculate ROU Asset and Liability balances with streams program
run in final mode, no balance change / new transactions are allowed in
that particular month.
 If business has decided to continue with the phase 1 solution itself, then
they have to run this program in final mode at the end of each period.
  When the program is run as of a particular month end then calculations
for all the future months are also made.
 Unless there are amendments/edits, calculations do not run for a
particular period again. Based on previous version of calculations and
next set of calculations, portfolio summary/detail reports, report all such
differences.

8.3 Uptake the Phase II solution

The phase II solution patch contains the phase 1 patch as well. So there is no need
to apply the phase 1 patch separately. So if we need to migrate from existing
property manager to Phase II solution, the below step needs to be followed

Finalize the Run the Run the Verify the Run the
Update the Setup the
Apply the lease to be calculation calculation calculation
Lease system reports and
Latest part of new program in program as finalize the program as
Agreements options
Cumulative Compliance Final mode as of transition Balance of transition
using the API Setup
Patch requirement of previous date in Draft date in Final
period

In the above flow, the first 4 steps remains same as it is explained in Phase 1 solution.

The 4th Step that is

4. Setup the system options Setup – As a part of phase II solution, the system options form
has been enhanced to capture the transition date, Primary regime and the calculation
frequency etc. Users need to enter these attributes before they migrate to Phase II solution.

5. Run the calculation program in Final mode for Previous period

While migrating to Phase 2 solution, the calculate program needs to be run in final mode for
the previous period. For e.g. , if the transition is done on 15th of Jun, then the calculate ROU
and Liability program needs to be run in final mode for the period end May-18 period. This
will generate the ROU / Liability balances on existing lease / Payment terms as of 31st of
May-18 period.
 Note :- this step is not mandatory if we are running the calculate Balances as of transition
date program with Method as “Modified Retrospective”.

6. Run the Calculate Balances as on Transition Date in Draft mode

Once the balances are finalized for the previous period i.e May-18 in our example, the next
steps would be to run the “Calculate Balances as on Transition Date” in draft mode.

Once the program is run in draft mode, it will process all the lease / transactions which are
created after the last period end i.e 1st Jun to 15th Jun and ROU and Liability balances will get
calculated for each of the leases / payment terms

Method :- Calculate Balances as on Transition Date program is enhanced by adding a new

parameter called Method. This parameter is non-mandatory. When you select a value Modified
Retrospective Method as the parameter for Method, the system will take into consideration all
cashflows on and after 1st day of the transition date period.

You can run the above program if you want Modified Retrospective Method numbers only. You
do not need not run Calculate ROU Asset and Liability Balances with Streams, until the last day
of the previous month as with the existing process.

Based on Report From Inception flag you can control if you want cash flows from lease
commencement to be considered into calculations. This new parameter will help you start
calculations from the transition month in contrast to earlier method of resorting to previous
month. You can still run Calculate ROU Asset and Liability Balances for each of the previous
months for which numbers are needed to be reported. However, the new parameter does not
depend/continue those balances into calculation of balances as on 1st day of the transition
period. Currently, the parameter can only be used for transition calculations in Final mode only
and through a subsequent fix. Draft calculations will also be provided soon.

7. Run the compliance reports and verify the result

Once the “Calculate Balances as on Transition Date” program is run in draft mode, users
can run the reports to verify the Portfolio balances.

8. Run the Calculate Balances as on Transition Date in Final Mode

The last step in the process of migrating to Phase II is to run “Calculate Balances as on
Transition Date” in a final mode. Once this program is run in Final mode, the Compliance
related setups done in the system option will be no longer editable.

9. Strategy for Migration:

Customers may follow one of the below mentioned strategies for migration:

a. Even loading of leases into the application is considered to be transaction for the
purpose of Transition. Hence Transition date cannot be in a previous period from the
month of loading of leases
b. If lease balances are needed for reporting for periods prior to Transition periods,
then run the calculation periods for those periods
 c. If Reporting is not needed from lease commencement date, do not check report from
inception, but run the calculations for prior periods. Calculations cannot be run post
Transition date

10.Reports
As a part of this enhancement request, below 4 reports are provided i.e
 Portfolio Summary Report
 Portfolio Detail Report
 Lease Detail Report
 Lease Analysis Report

Note – All these 4 reports shows the balances in entered currency

10.1 Portfolio Summary Report

Portfolio Summary report can be extracted to get the portfolio details for a given time
range. This report extracts the ROU, Liability balances at the portfolio level and will be
mainly useful for the top management. The portfolio report is run at Operating unit
level and has below parameter
As of date - This is a mandatory period and we need to select the staring period from
which the portfolio balance will be reported.

End date – User need to enter the end date if they want to see the balances until a
specific period. It is not a mandatory field and if in case if this parameter is not passed,
the report will show the entire portfolio of the leases until the last period of all the
leases.

Representation – User need to select the accounting method value, if they want to see
the report balances only for a specific accounting method

This report has different sections i.e

10.1.1 Header section

 In this section we can see the parameter passed to the report like Operating Unit, Report
run date, accounting method representation etc.

10.1.2 Portfolio Balance Details

In this section we can see period wise liability, cash, ROU and interest balances etc for both
Finance and operating lease as well as separately for Finance and Operating leases.

Portfolio Balance report is kind of a controller report as this report lists the original portfolio
balance for the period and it also shows the difference amount calculated for that particular
month due to an amendment or Edit. For e.g the original ROU / liability balance for a period is
$10000 and due an amendment, the ROU balance for the period was increased by another
$2500. So now the original balance for the period will show as $10000 and under Increase /
Decrease column we will see the $2500 balance.

10.1.3 List Of Lease Modifications

In this section we can see all the leases and their amendment details which are contributed to
the difference amount under the “Portfolio Balance Details” section.

10.1.4 Intercompany Balances

In this section we can see the details of all the leases / payment terms where the ‘Intercompany’
check box is checked in Payment term level. This section will also show intercompany payment
terms which has amendments during the period.

10.2 Portfolio Detail Report

The portfolio detail report is used to drill down and analyze the detail of totals reported in
the portfolio summary by lease. The portfolio detail report displays the ROU asset and
liability ending balance for each lease in the OU for the selected month. Like the Portfolio
Summary Report, this report also displays the required monthly interest and amortization
streams for finance and U.S. operating lease reporting methods. Even this report is
generated at operating unit level and has below parameter for running this report is

Portfolio detail report shows the streams balances for a particular month. This report has
below sections

Header section -

In Header section, even this report shows the report parameters with which the report is
run.
Portfolio Balance – In this section we can see the details of ROU, Liability, interest, Amortization
etc which are generated at each of the lease level for Finance And Operating Lease, Finance
Lease(IFRS Operating Also) and Operating Lease(US GAAP Only)

This report captures the streams details at Payment term level and if there are multiple payment
terms under the same lease, the lease will have multiple rows in the report

In addition to the above, this report also has List Of Lease Modifications and Intercompany
Balances sections

Portfolio Summary and Detail reports are useful to verify Transition Transactions. These reports
can also be used to prepare Look Back period comparative statements.
 10.3 Lease Detail Report

This report provides the balances for a particular selected lease “As of” date. This report is
complimented with detailed amortization schedules which explain the basis of calculations of
these balances. This report can be run with below parameters

Even this report has different sections like

10.3.1 Header section –

Header section covers the report run date, Operating until under which the lease falls, The lease
commencement date, lease termination date, lease classification etc.

10.3.2 Summary Section –

This section shows the period wise liability, ROU and interest balances at the lease level. This
section is nothing but the summary of balances of all the payment terms under this particular
lease. The currency column shows actual currency of the Payment terms. If there are payment
terms with different currencies, then balances at each currency code level will be shows.

All the balance sheet balances like ROU and Liability are month end balances. Accrual
transactions are the expenses for the month. Every month which has a payment is displayed in
this report.

10.3.3 Amortization Schedules at Payment term Level

The lease detail report shows balances / streams calculations for each of the payment terms
under a lease. Even at payment term level, there are 3 sections i.e

Payment term variables and ROU / Liability Balance calculation. The same section also shows
all recalculations too.
Under payment term variables we can view the Payment term amount, Payment term start date
and end date, Interest rate applicable to the payment term, total duration etc. and this section
also captures, all the compliance related attributes selected at the payment term level.

The next section i.e Right of Use Asset calculation. In this section we can see the pay date, total
number of days that has been considered for the Present value (PV) calculation, interest rate
used for the present value and finally the derived present value amount.

Similarly, in Lease liability calculation section, we can see the attributes used to derive the Lease
Liability amounts.

U.S.GAAP Operating Leases

This section shows the ROU and Liability balances used for reporting under U.S. GAAP. This
also captures the interest expense, amortization amount, ROU and liability balances for each of
the month throughout the Payment term life span.

The Amortization amount for US operating leases is the difference between Lease Expense and
Interest Expense. The lease expense is the simple average of total of lease payments over the life
of the lease.

IFRS Operating and Finance lease and US GAAP Finance Lease

This section captures the details required for Operating and Finance lease under IFRS and
Finance Lease reporting requirements under U.S GAAP. What this means is that the
Amortization expense which is calculated on a straight line basis like Lease Expense under US
GAAP is same for Finance leases of US GAAP and any lease under IFRS. In place of Lease
Payments, the ROU balance is amortized on a straight line over the life of the lease as shown
below.

10.4 Lease Analysis Report

This report shows the lease liability balances both at undiscounted as well as
discounted amounts, based on the lease / Payment term duration. This report can be
run by passing the below parameter
This report also has different sections like header section captures the report
parameters passed while running the report.

The next section in the report is details sections

 In this case, we capture lease details like lease name, number, lease duration,
Currency code, interest rates applied etc.

Lease liability - Undiscounted

In this section we capture the remaining liability balances which are <= one year, <= 5
years and greater than 5 years. For e.g if the as of date for the report is passed as Jun-18 then we
calculate the undiscussed balances for each of these columns as using the below formula

Lease Liability <= One Year - Sum total of all payments terms for 12 months from 30-Jun-
18(=<12 months)

Lease Liability <= Five Years - Sum total of all payments terms for 60 months from 30-Jun-18
until 30-Jun-2023(=<60 months)

Lease Liability <= Five Years - Sum total of all payments terms for all terms until termination
date if remaining term life is >=60 months
 Lease liability – discounted

The balances in section will be calculated using the below formula

Lease Liability <= One Year - Liability balance as of 30-Jun-18 as of date less
Liability balance as of 30-Jun-19

Lease Liability <= Five Years - Liability balance as of 30-Jun-18 as of date less Liability
balance as of 30-Jun-2023 if any(upto 60th month). If remaining life is less than 60
months then Liability as on 30-Jun-18

Lease Liability >= Five Years- Liability balance as of 30-Jun-2023(60th month). If

remaining life are less than 60th months then Liability as on 30-Jun-18

11. Options
As a part of this enhancement request, options tab in lease work bench has been enhanced and
going forward, users can use the options tab to enter the payment terms which are certain to be
exercised from tenant’s perspective and mostly it is used to capture any one time payment
terms. But it could be periodical as well depending on the business need.
Option tab now has been enhanced and below details can be captured now

Option Type :- Few pre-defined option types has been added to the LOV and user need to
select these options types only.

Start date – Start date of the options

End date – End date of the options

Calculation frequency – Same values as we have in payment term i.e One time, Annual,
Monthly etc

Schedule Day – Transaction date applicable to Options

Escalation percent – Users can enter the escalation % if they want the options to be created
automatically. For e.g if the current option amount is 100 and the escalation % is defined as 10,
system will generate a payment term of 110 for the next fiscal year and so on. Note that
escalation % can be a negative or a positive amount

Escalation Amount - works similarly to escalation percent but user will have to provide the
amount.

Status – Options can be created in any status like cancelled, exercised, open, rejected etc. But
options with status ‘OPEN’ only will be considered for calculation

Compliance related Check boxes – Now even at Options level, the compliance related check
boxes like ROU / Liability/ report from Inception / inter Company check boxes can be checked.
Please note that only the options which has ROU / Liability check boxes checked will be
considered for calculation

Please note that

  Options can be added only via Amendment going forward
 Options can also be extended / terminated via amendment and system will recalculate
the ROU / Liability balances due to Options Amendment / termination.

 All calculations during amendment of Options like ROU,Liability, etc

including lease expense will start from Amendment start date
 Schedule and items program will not be triggered when only an option is added /
amended. But if a schedule and items program is triggered as a part of Payment term
amendment for a lease which has options, the program output has been enhanced to
capture the options details as well

 Options will also be part of period end accrual balances and Interest
Expense and amortization expense will be derived for Liability and ROU
considering option amounts.
 Amortizations and interest expense for options are calculated till option
termination date. The amortizations/interest are not restricted to the lease
termination date.

12.View Transaction
As a part of this enhancement request, a new “Transaction page” has been introduced for
the user to view the different transaction events generated for a particular lease and also to
drill down to the accounting event of each of these transaction types. Navigation to view
the transaction is Transactions > View Transaction.

In this page, we can query the transaction based on operating unit,Ledger Name, Lease
name, Lease number, transaction type, Currency etc. Even though lease name is not a
mandatory field, without selecting the lease, we will not be able to query the transactions.

When we enter all the mandatory attributes and click on Find, the list of transactions that
has been done on the lease will be listed.
We can click on any transaction number to check out the different balances / streams that
got generated under that particular transaction like under Booking event, ROU and
Liability balances are hit,

Similarly under Termination event we can see that ROU and liability balances are reversed
due to termination

Using the transaction View form, we can also drill down to the accounting entry details
generated for each of these accounting events. To drill down to the accounting entries,
select the Radio button next to the transaction and click on ‘view Journal’

The view journal entries page will open as follows

 Here we can see the actual Code combination id that has been hit for each of the lines based
on our Subledger accounting setup.

Also using the transaction view form, we can view the data for both primary and
Secondary ledgers. To do so, we will have to select the secondary ledger the Ledger field in
view transaction form and then click on Go. Then form will list all the account balances that
got generated / accounted in secondary ledger.

The Transactions are created in Entered currency. Hence if a particular Booking is

generated from payments terms in multiple currencies, then booking amounts arising from
each payment term are displayed when the correct currency is selected.

Please refer to the detailed whitepaper on accounting configurations for SLA 2396463.1. The
release notes also contains a list of new Property Manager sources available for configuring
SLA.

AP invoices are also fetched into this new view so that the users get to see all the transactions at
one place.
13.Transaction Flow / Period end activities under new Regime
Once we have migrated to new regime, the transaction flow is going to be

Perform edit Run the

Approve the Export the Run the
Create new / amend Transfer
Schedules for lines to create
lease activities for normalized
the period Payables accounting
agreements existing lines to GL
program
Lease program

13.1 Create new lease agreements

The first step as a part of period activities under the new regime will be to create
new lease agreements if any. When a new lease is created, if user want them to be
part of streams calculation they will have to make sure that the Interest index, ROU/
Liability check boxes are created at Payment term level.
 Once this lease Approval status is changed to ‘Final’ System will trigger the
schedule and items program and will generate the schedules.

If the Report from inception is checked, then even for a new lease, the cashflows
from lease commencement date will be considered. The current carrying balances of
the lease will be used to created starting booking events.

Post completion of schedule and items program , in view transaction page we can
see that “booking” event is generated and system has calculated the ROU/ Liability
balances

In the view transaction form, the transaction date for the booking transaction type will
be derived based on the below logic (when Report from inception check box is not
checked)

 Lease commencement date in past  Transaction date will be First day of the system
month For e.g if the if the Lease is created on 8th of July with lease start date as 1st June,
then transaction date will be 1st Jul as the system date is in July period
 Lease commencement date=system date Transaction Date = system date
 Lease commencement date less than system date but in the same system period
Transaction date = Lease Commencement Date
 Lease commencement date in futureTransaction Date = Lease Commencement. This
way the future transactions cannot be accounted on the system date.
13.2 Approve the Schedules for the period
The next step in the period closure process would be to approve the schedules for
the period. The same can be run by navigating to Leases and Documents > Payments
> Authorize

13.3 Export the Lines to Payables

Once the schedules are approved, the next step would be to export them to Payables.
To export the lines to Payables, navigate to Leases and Documents > Payments >
Export to payables
We can select the lines which need to be exported to payables and click on export button
which will trigger the “Export Payment Items to AP” program and this program will
insert the invoice lines in Payable open interface.

As part of this enhancement, the liability flag captured the payment level is sent over to
the AP invoice line level as segment value two. Users can use this value to author their
accounting in accounts payable to reduce the leave library instead of posting the amount
to the expense.

13.4 Run the Transfer Normalized Lines to GL program

Once the lines are exported to ap, we can run the transfer normalized lines to GL
asset program. This program has below parameters
Lease number and period names are not mandatory parameters for this program
and we can run this program for all the eligible leases in one go. Once this program
is completed, we can see that accrual event is generated for Jun-18 period.

The transaction date for the accrual transaction will be generated based on when the
‘Transfer normalized lines to GL program is run”. If the program is run for a
previous period, then the transaction date will the first day of the current open
period. In our example, I have run the accrual program on 8st of Aug for Jun-18
period and that is why the transaction date is derived as 1st of Aug.

If the program is run the middle of the month, the transaction date will be the
system date. For e.g if your system date is 24th of Jun and if you run the program for
Jun-18 period today, the transaction will be generated as 24th Jun.
  Accruals cannot be run for future dates/periods.
 Accruals also cannot be created for periods before lease creation date. For
example if a lease is loaded with a create date of 10-Jul-18, accruals for
periods before this creation date cannot be created. This restriction is put in
place to avoid the balances to be brought down further from the brought
forward balances.

As per the latest functionality provided, the accruals for the period can be run any
time during the period and if in case if there is any changes in the lease post the
accrual generation, system will generate the reversal entry for the previous accrual
accounting and will generate a new one when the transfer normalized lines to GL
program is run again .

Currently we do not have any dependency on the schedule approval / export to

Payables for generating the accrual entry.

13.5 Run the create accounting program

The next and the last step in the period end process would be to run the create
accounting program to transfer / accounting these events and also to transfer them to
General ledger . The below accounting will be generated for the accrual transaction.

The journal lines we can create it in a summary form to avoid multiple lines for ROU
or liability at payment term level. The journal line types can be created in summary

14.Foreign Currency Leases

In property manager a billing / payment term can be entered in any other currency
than the functional currency of the ledger. In the lease work bench, by default the
functional currency value will be visible. If you want to add any other value to the
Currency LOV in payment / Billing tab, the same needs be added by navigating to
Property Manager > Setup >International >Enable Reporting Currencies.

When a lease is created under foreign currency, the conversion can be done in two
ways i.e

 Conversion rate type specified in the Currency Conversion Type system option

 Entering the conversion rate manually in Payment terms window. This can be
entered only if the Conversion rate type is set to ‘user’ in System Option

Below is the setup option which decides what exchange rate type will be used for
converting the foreign currency amount to functional currency

Under the new IFRS regime, for foreign currency leases all the streams / ROU /
Liability balances are created in entered currency only. Even all the seeded reports
show the details in Entered currency only.

The foreign currency balances are converted in to functional currency, when the
transaction is accounted. The conversion rate for each of the transaction will be

Transaction type Exchange rate Date

 Booking Transaction date of Booking event i.e
the date when the lease / booking event
is created
Lease Payments Schedule date
Interest expense Period end (last day of the period on
which Accrual program is run)
exchange rate
Lease Extension / Contraction Transaction date on which lease
extension / contraction is done
Amortization Exchange rate of Booking event.
The view Transaction page displays a transaction both in entered currency as well as
well transaction currency.

When we run create accounting for these accounting events, the accounting entry will be
generated in entered Currency as well as accounted currency.

The below mentioned rules are followed for creating transactions in foreign currency:

 Based on system option either the user rate or the corporate rate is used for the
transactions
 If the user selects user rate than the rate existing at the time of creation of the lease
does not change over the life of the lease.
 If the user chooses corporate rate then ROU is only locked for the life of the lease.
 Interest and amortization expense are calculated using the month-end rate on the
lease.
 AP invoices are generated using the rate existing at the car at the time of creation of
the invoice
 All the amendments during the life of the lease follow the above set rules.

15.Formulas Applied
Under the new IFRS regime, ROU, Liability, interest etc are calculating using the below
formula
16.1 Present value (Simple Interest)

Present value of a cash stream= C /(1+R/100/Proration days)^N

Where C= Cash flow amount for the period

R= Discount rate

N= Number of days of the cash flow from “As of Date”

For Actual days in a period or 365 days proration rule, the same method of calculation of
PV as explained above is followed.

Present value (Compound Interest)

Present value of a cash stream= C /(1+((R/100)^(1/Proration days)-1)-Days

For e.g the cash flow for the period is 2000 and Interest rate is 4.5% and # of days from lease
period is 30 and the calculation frequency is 360 Days/Year.

In the above example, to calculate the present value, first we need calculate the daily
interest rate i.e (1+(0.045))^(1/360)-1)

So daily interest rate will be = 0.000122277

Now the present value is calculated with the following formula

= 2000*(1+(0.000122277))^(-30)

= 1,992.68

16.2 ROU / Lease Liability Balance

Total Present value as of date.

From next period onwards the ROU balance will be = Beginning ROU Balance –
Amortization

16.3. Interest calculation - Periodic

If the schedule day for the payment term is in the beginning of the month

Interest expense = (Total Liability at the beginning of the period – Payment amount)* (Interest
Rate /Proration date)* Number of days from Schedule date to period end

If schedule day is any day after the Starting date of the period
We calculate interest till payment date on opening balance of lease liability. From Payment
date month end date, interest is calculated on Liability remaining after payment deduction.

= liability balance start * interest rate per day * no of days before payment

( liability balance - payment ) * interest rate per day * remaining days after payment

Note - For periodical interest calculation we use Internal Rate of Return and not Discount
Rate for periodical calculations. However for daily calculations, discount rate is used as is in
place of internal rate of return. The present value calculation is exactly the opposite direction
calculation of compound interest and hence there is no necessity for using internal rate of
return.

360 Day Proration: for this proration, both the present value calculation and interest
calculation assume that every period has 30 days hence in a year 360 days.

If the proration rule is Days/ Month, the formula for interest calculation will be

= (Beginning Liability / 12) * IRR rate *number of days / Total number of days in Month

16.4 Interest calculation – Daily

Interest Expense= A(Amount inclusive of Principal and Interest)-P(Initial Principal)

A(Amount inclusive of Principal and Interest) is calculated by following formula

= P(1+r/n)^r

Where P= Initial Principal

‘r’= rate of interest for the frequency compounded

‘n’= number of times compounding.

16.5 Amortization

The formula for calculating the amortization amount will differ between US GAAP and
IFRS.

For US GAAP—X-Y
Where X is Sum of all payments/number of periods(Lease Expense)

Y is Interest Expense for the period

For IFRS: Total ROU/number of period

Now we will review / apply the above formula’s on a particular lease / Payment term and
check how each of these balances are derived

Pay date – This value is derived based on the Schedule date. In our example the schedule
date is 1 and that is the reason why pay date is populated as 1st Jul 2018. If the schedule
date for the payment term was 15th of Jul, then the pay date would have been 15th of July 9,
2018

Day – The value in days column is calculated based on the period start date and schedule
days. In our example, since period start date and schedule date is same, the day column is
showing zero days.

Payment – Monthly cash flow or the scheduled payment amount

Rate – Interest rate applicable to the payment term

PV (present value) – The amount in the present value column for Aug-18 period is derived
by using the below formula

= C /(1+R/100/Proration days)^N

= 1000/(1+7/100/365)^31

= 994.07
Same formula is applied for all the months to derive the Present value. For each of the
month, all other factors will remain same except the Number of days of the cash flow from
“As of Date” i.e ‘N’

Calculation under U.S. GAAP OPERATING LEASE

As of Date – In this section, As of date shows the calendar end date for each of the calendar
periods

Beginning ROU Balance – Beginning ROU balance for the first period i.e period ending
31st Jul 2018 will be equal to total present value. As we have seen the previous screen shot,
the total PV balance for the lease is 17134.77 and the same value is populated as Beginning
ROU.

From next period onwards, the Beginning ROU balance will be

= Previous period beginning ROU balance – Amortization.
For e.g The ROU balance for Jul-18 period is 17134.77 and amortization balance for Jul-18
period is 904.08. So ROU balance for Aug-18 period is = 17134.77- 904.08
= 16230.69

Generally ROU starts with a balance equal to liability. However if the ROU has a few
adjustments then it is advised to create those adjustments as separate payment terms which
only ROU value selected. The amortizations can also be worked for negative payment
terms. For impairment of ROU, add a negative payment done with the start date through
the amendment commencement date which can correct the right of use balance.

Amortization – The amortization amount under US GAAP will be derived based on below
formula =
Lease expense – Interest Expense

The lease expense for Jul-18 period is = 1000

Interest Expense = 95.92
So amortization value is = 1000-95.92
= 904.08

Ending Balance- Ending balance is derived by subtracting the beginning ROU balance –
Amortization
= 17,134.77 - 904.08

= 16,230.69

Beginning Liability Balance - Will be equal to the total Present value of the lease as of
date.

Interest Expense – Interest Expense for the period is calculated by applying the following
formula

Interest expense = (Total Liability at the beginning of the period – Payment amount)* (Interest
Rate /Proration date)* Number of days from Schedule date to period end

So interest expense for Jul-18 period in our example will be

= (17,134.77 – 1000)*(7%/365)* 31

=95.92

Lease Expense – Will be calculated based on total cash payments / Number of periods in
payment term. So total cash flow for the payment term is 18000 and the life span of the
payment term is 18 months. So lease expense will be = 1000.

Calculation under IFRS OPER&FIN LEASE AND US-GAAP-FINANCE LEASE

 Beginning ROU Balance – Like US GAAP, even under IFRS beginning ROU balance will be
equal to the total Present value of the payment term as of date

Amortization – Under IFRS amortization amount is calculated on a straight line basis i.e
ROU Balance / Number of periods Lease term i.e 17134.77 / 18 months
= 951.93

16.Retro dated leases

In the actual business case, the leasing department will get the final lease agreement little later
than the lease commencement date. So in this case customers need an ability to book lease
accounting balances as of a previous period / Lease Commencement Date. They also need to
catch up accruals for the past period. This requirement can be met using the retro dated lease
functionality.
Create a lease

Create a payment term with past dated commencement date and make sure “Report from
Inception” check box is checked at payment term level. If the Report from inception Check box
is not checked, then lease booking accounting will be generated with the ROU & Liability
balances as of Lease creation date.
Now when we finalized the lease, system will generate the booking event as follows

Though the lease has a commencement date of 1st Jan 2019, the booking event is created with 1st
Jul 2019 as transaction date because Jul-19 is the latest open period in the GL calendars which is
linked to the operating unit in which lease is being created.

In case of retro dated leases, though the amounts for Booking are always as of lease
commencement, booking date is determined as below:

Higher of the following dates:

 Lease Commencement Date or

 Transition Date or
 1st Day of Open Period in Transition or thereafter
In case of retro dated leases, along with Booking event, system will also generate a accrual event
to generate the catch up accrual from lease start date to the lease booking event transaction date
i.e from 1st Jan 2019 to 30th Jun 2019 in our above example.

Booking event Balance Matching with Jan-19 beginning balance

In addition to booking event, system will generate accrual entry from lease start date to booking
period beginning and these accruals will have the description as “Catch-up Accruals”.

These catch up accruals will have the stream types “amortization”, “Interest” and “Liability”.

Note that retro dated lease functionality is available only for leases which are created after the
transition process. If a lease is created prior to transition and post running transition process,
system will not generate any catch up accrual accounting
17.Enhanced Edit / Amend activities for existing Lease
Lease life is highly dynamic. Many times, the terms and conditions and the payment
terms on the lease may need to be changed from what was agreed upon at the
inception. These are input in the system as an amendment or an edit. It is highly
recommended that the users resort to amendment as a means of change
management. An amendment has amendment commencement date which is very
important to understand what the start point for the amendment is.

At a high level, below amendments are quite normal during the lease life:
 Changing the discount rate index
 Adding payment terms
 Renewals
 Changing the least classification
 Termination of the lease or contraction of the payment term etc

Most of the above amendments are created as a revision event. User can configure
accounting rules for the revision events to complete the accounting for the revision
events. The revision events/amounts are created and transacted through well laid
down rule. On the other hand, if we perform a contraction of the lease agreement,
then system will generate the “Termination” event type.

After IFRS enhancement, while trying to do an amendment, below options will be

prompted

Depending on the kind of amendment we are trying to make, the respective option
needs to be selected.
Amend Lease – Should be selected when user wants to make changes to any of the
lease level attributes likes updating the lease termination date, Change interest index
etc. When amend lease option is selected, application will not allow us to make any
changes at payment term level

Amend Terms – Should be selected when user is trying to make a change to an

existing payment term / option or add a new payment term / option. When Amend
term option is selected, lease level details like lease termination date etc cannot be
updated

Amend Lease Classification – Should be selected if user is trying to amend only the
lease classification i.e change the lease accounting method from Operating to Finance
and visa versa.

Link term – In current property manager, for an existing payment term few
attributes like Payment amount, frequency, Schedule date etc, cannot be updated. If
in case if there is a requirement to update these attributes, we need to end date the
existing payment term and create a new one. In this case, though we are creating a
new payment term, as this is a continuation of the existing payment term itself,
system should not calculate the ROU &Liability balances etc afresh for the new
payment term. So this business requirement can be met using the Link term
functionality.

Important Points to be Noted Performing Amendment

 Amendment commencement date (ACD) cannot go back prior to Booking

transaction date
 Recommended to have ACD of current period for all the other transactions
except past dated termination
 While performing a back dated termination, the new termination date cannot
be prior to ACD date
 You cannot enter over lapping ACD date
 We need to use amendment functionality for all amendments. Do not use edit
functionality to update / make any changes to the lease.
 All the amendments that are performed will be with effect from ACD date.
The ROU & Liability balances as of ACD date will be compared with new
ROU & Liability balances and the difference will be accounted as a part of
revision transaction
  When we do back dated amendment, only for calculation we consider ACD.
But previous period balances will not be changed and reports will still show
earlier numbers only.
 When an amendment is done, for the month of amendment and for all the
future months, the lease expense will be calculated as
Calculate Delta A= ROU-Liability on the first day of the period of
amendment (current practice)

Add remaining cash on/after the first day of the month of amendment(B) to
A above---A+B

Deduct prorated Lease Expense from 1st day of the period of amendment till
the day of amendment-C..hence finally, A+B-C

 After performing an Amendment, lease detail report will start fetching the
data only for the Amendment commencement date month
 The transaction date for the Revision transaction will be same as ACD date
and the transaction date for the termination transaction will be based on the
system date.

18.Option Cancellation
Sometimes, though we have made a provision for an option in a lease, at a later stage,
business might not excise those options. So in these kind of cases, the option can be
cancelled by changing the option status to “Cancelled”. When an option status is changed
to cancelled, system will reverse the complete effect of the option.

Create a lease with an open option

 In view transaction page we can see that booking event generated has considered both
Payment term and Option

Same is the case with Accrual event also

Now perform an amendment and cancel the option

Now when we see the accounting generated for the option cancellation is
In the above entry we can see that option cancellation has reversed the ROU & Liability balance
accounted during booking event as well as accrual events to the extent of options.

Also, post option cancellation, there will be no trace of these cancelled options in Lease work
bench > Options tab

Note that system will allow to change the option status to cancelled

- Only future options can be cancelled

- Only if the option start date <= Amendment commencement date, then option can be
cancelled
 - For existing options, if the user wants to cancel, they will have to do an amendment /
termination and update the option end date.

19.Lease Re-classification
As we know, under IFRS enhancement, for a lease to be considered for compliance
calculation, the lease needs to be classified as Finance lease or Operating Lease. Lease
classification is not only one of the key attributes which drives the lease accounting/ ROU /
Liability amount calculation, it is also one of the key factor which derives the accounting.

When the lease is finalized, system generated ROU / Liability / Amortization values based
on the current lease classification. However current property manager provides the
flexibility for the user to reclassify the lease even after lease finalization.

With the help of below example, we will see how accounting is generated when the lease
reclassification is done.

Created a lease with accounting method as Operating lease

Finalized the lease and post that accounting generated is

As this is an operating lease, compliance balances are calculated both for IFRS & USGAAP
section

now we will change the accounting method of the lease to Finance lease
Now change the accounting method of the lease

Once this transaction is saved, system generated the below revision transaction

In the above example, system generated the revision transaction with zero amount because
there is no change in ROU / Liability balance. If in case if there was a change in ROU /
Liability balance as of Amendment Commencement date, then the same would have got
accounted under revision transaction.

Now as we have changed the accounting method to “Finance Lease “, when we run the
lease detail report, system is will show only the Finance Lease section
 For USGAAP, lease classification, should be used in accounting configuration. For
example, if the lease classification is FINANCE, then ROU amounts and Amortizations
should be picked from IFRS16 regime code and if the lease classification is OPERATING,
then ASC842 regime transaction amounts should be picked for accounting.

However, currently in product so far seeded source for lease classification is not available.
The lease classification needs to be derived from a custom source.

20.Interest Index change

Under this new solution, the whole calculation / Lease accounting is dependent on interest
rate applied on the lease. As interest rates are subject to change they can change multiple
times during a lease tenure. So when the interest rate is changed, the ROU & Liability
calculation for a lease also needs to be recalculated.

We will see how this recalculation is done for an existing lease with the help of a lease.
Lease is created with below details
In the Lease detail report, we can see that lease has below ROU & liability balances

In the above report, we can see that applicable interest rate is 5% and ROU & Liability
balance as of 31st of Dec 2019 is 22840.51 & 22888.90 respectively.

Now we will change the interest index of the lease to a different rate
Discount rate is changed to 7pct now. Now in the view transaction page, a revision event is
generated

Under Revision event, system has reversed below ROU & Liablity balances
When we run the lease detail report, we can see that revised interest rate of 7% is applied
on the lease

In the payment term section we can see that starting from Amendment commencement
date, system has recalculated the Present value and a new ROU & Liability balances are
derived

22464.67 is the new Present value based on the revised rate. Now in ROU and Liability
section of the report we can see that
In the above section we can that beginning Liability balance for the payment term was 22888.90
and the revised Liability balance is 22464.67 (as 22464.67 is the revised PV balance), the
difference of 424.32 is accounted as a adjustment amount and same is the case with ROU
balance also.

The same ROU & Liability balance adjustment amount is what is accounted under revision
event.

21.Periodic Amortization & Daily Interest calculation

In this example we will see how interest calculation is done, when Interest calculation is setup
as Daily compound interest. System option has been setup as follows

Lease is created with below details

Payment term is created with below details

For the above lease, the formula for calculating the present value will be = C /(1+R/100)^N

So Feb-20 present value = 1000/(1+0.06/365)^28

= 995.54

Similary for Mar-20, the present value is calculated as follows = 1000/(1+0.06/365)^59

=990.63

Now In the lease detail report, the interest amount is calculated as follows

In compound interest first we derive the daily rates and based on the daily rate the interest
amount will be calculated. The daily rate for the above lease is

[(1+R%)^1/365 or 360]-1

= (1+(0.06))^(1/365)-1

= 0.000159654
Now interest amount for Feb-20 period is = ((Beginning Liability – Payment) * (1+ daily Rate
))^29 - (Beginning Liability – Payment)

=(((22714.37-1000)*(1+0.000159654)^28))-(22714.37-1000)

=97.28

Similary Interest amount for Mar-20

= (((21811.65-1000)*(1+0.000159654)^31))-(21811.65-1000)

=103.25

22. Daily Amortization & Daily Compound Interest

In this example we will see how interest calculation is done, when Interest calculation is setup
as Daily compound interest. System option has been setup as follows

Lease is created with below details

Payment term is created with below details

Present value is calculated using the below formula

C /(1+Daily Rate)^N

The daily rate for the above lease is

[(1+R%)^1/365 or 360]-1

= (1+(0.05))^(1/365)-1

= 0.000133681

Present value = 1000*(1+(0.000133681))^(-29)

=996.13

Interest Amount calculated for Feb-20 period is

= ((Beginning Liability – Payment) * (1+ daily Rate ))^29 - (Beginning Liability –

Payment)

=(((22914.02-1000)*(1+0.000133681)^29))-( 22914.02-1000)

= 85.11
 Amortization calculation under Daily amortization is calculated using the below
formula

= daily rate * number of days

Daily rate is calculated using = Total amortization balance / Total number of days in
lease duration

In our example the lease duration is 2 years. But since 2020 is a leap year, the total
number of days will = 2 * 365 +1= 731
Daily rate of amortization = 22914.02 / 731
= 31.35
So Feb-20 amortization = 31.35 * 29
= 909.0377

23. Payment Term Linking

In a business environment, few attributes related to leases / payment terms change over a
period of time. However in current property manager for an existing lease / payment term few
attributes like payment term frequency, payment term amount etc cannot be changed.

In earlier property manager, we use to end date the existing payment term and create a new one
earlier. But with the IFRS / ASC842 enhancement, with above work around, customers will end
update with incorrect gain / Loss amount etc which is not in accordance with the compliance
requirement.

So to handle these kind of requirement, the Payment term link functionality was introduced.
Now we will see how this functionality works. A lease has been created with below details

The ROU & Liability balance for the lease is as follows

Now we will end date the existing payment term and will create a new one with a different
frequency. To do so, navigate to Lease work bench and Click on amendment and select the Link
term option

Post that system will prompt the below form

Here we need to select the payment term linking which we want to create a new payment term.
Select the term and click on find.
In the above form we can see the existing payment term details and on the right hand side you
can key in the new payment term amount / schedule day / Frequency details. You will also have
to decide from which date the existing payment term need to be end dated and the new
payment term should be created.

Now we are end dating our existing payment term as of 31st of Mar 2020 and we will create a
new payment term with quarterly frequency post that

Once the transaction is applied, we can see two schedule and items program getting triggered
i.e
One for payment term contraction and one for new payment term addition. Post this program
completion, we can see that in payment term tab we can see that system has end dated the
existing term and have created a new payment term with below details

We can see that now system has created two accounting transactions i.e
When we run the lease detail report, we can see that for the payment term which got
terminated, the balances are calculated as follows

Under ASC842, the opening ROU balance as of Mar-20 period is 21096.95 out of that 920.88 got
accounted as Mar-20 period amortization and the remaining Rou balance of -20176.07 got
reversed.

Now in case of Liability, the opening Liability balance is 21,096.96 and the interest expense of
79.12 is added to the liability and Payment amount for Mar-20 period i.e 1000 is reversed. So
total Liability adjustment is -20176.08

Under IFRS regime, the ROU balance reversed is

Now as we are following the IFRS regime as a primary regime in our current OU, the
termination accounting generated is

Now for the newly added payment term, system has generated the below revision event
In the above revision entry we can see that the ROU , Liability and Reserve balances which got
accounted during earlier generated termination event is generated and in addition to that
system has generated an ROU & Liability balance of 10168.91 for the newly added payment
term.

Lease detail report shows the below details for the newly added payment term

Above we can see that beginning ROU & Liability balances are continuing with the balances
carried forward from the previous payment term.

24.Lease Extension

Lease agreement is a common scenario in any business organization and in this example
we will try to understand the calculation when a lease is extended.

Initially lease and payment terms were created with below details
ROU & Liability balances during the lease creation is

Now we will extend the lease for next one year i.e Until 31st Dec 2021
While extending the lease, system will prompt you to confirm whether you want to extend
the associated payment terms as well

Post lease extension, both lease and Payment term is extended until 31st Dec 2021 and in
payment term section for the payment term which got extended, we can see that

We can see that beginning balance of Liability as of Mar-20 period is 9813.79 and due to
lease extension, the revised liability of 11249.17 got added to the liability. The liability
adjustment of 11249.17 is nothing, but the sum of PV values of all the cash amount from 1st
Jan 2021 to 31st Dec 2021. Same is the case with ROU balances as well.

Due to this extension, system created a revision event as below

25. Lease Early Termination
When the lease contract ends prior to the earlier determined termination date, then system will
reverse the ROU & Liability balances for the period after termination date. When lease is
termination, it could have 3 types of payment terms in it i.e.

Past dated payment term – A payment term which has end dated prior to the revised
termination date of the lease. In this case, as the payment term is already end dated and all the
cash payment is already made to the supplier, the remaining ROU balance of the lease will be
accounted as amortization in the period of termination and there will not be any gain / loss
for the these payment terms.

If in case if there is a requirement to hit the gain and loss account instead of amortization
during past dated termination, then a small custom source needs to be used.

Active Payment term – A payment term which is active as of termination date. In this case the
ROU / Liability balances as of termination date will be reversed

Future payment Terms – A payment term which is starting after the termination date of the
lease. In this case, as the payment term starts after the lease termination date, system will

- Delete the entire payment term from Payments tab

- ROU & Liability balances booked to the extent of this payment term will be reversed
- Accrual entries generated for this payment term will be reversed

Now we will see how system calculates the Termination event balances in different cases

25.1 Current period

In this example we will see the system behavior in case of current period termination. The
lease is created with below details
The lease has 3 payment terms i.e

Payment term 1

Payment Term 2

Payment Term 3
 Now we will terminate the lease with termination date as system date

Now post termination, we can see that in lease detail report, for the first payment term which
has

Payment Term Start Date 1/1/2019

Payment Term End Date 12/31/2019

For this payment term, as the payment term is already expired before the termination date, the
whole remaining ROU is accounted as amortization expense

For the second payment term

The beginning liability balance for this payment term as of Mar-20 period is 14740.76. The
payment amount of 394.52 is the fraction amount for 8 days i.e 1500 * 12 / 365 * 8= 394.52

Interest amount is the interest calculated for 8 days i.e = ((14740.76 - 394.52)*0.05/365^)*7 days

= 13.15

So remaining Liability balance of 14359.39 is reversed as a part of termination.

Now with respect to ROU balance, the beginning ROU balance for the term is 10267.04 and
amortization balance for 7 days is 107.4 i.e 466.68 * 12/365 *7=107.4

466.68 is the monthly amortization expense prior to termination

The left over ROU balance for the payment term is = 10267.04 -107.4=10,159.64

But for the same payment term we have reversed the Liability balance of 14359.39. The
difference between ROU & Liability balance reversed is accounted under gain / loss amount i.e
10,159.64 -14359.39=4199.75

With respect to third payment term which had start and end date as follows

Payment Term Start Date 1/1/2021

Payment Term End Date 12/31/2021

This does not exist in Lease detail report any more. As the start date of this payment term is
after the termination date of the lease, the whole payment term has been deleted from the lease.
However ROU & Liability balance and accrual balances accounted to the extent of this payment
term has been reversed in termination event.
In the above termination event, we can see that ROU & liability balance reversed to the extent of
21228.77 is pertaining to the future dated payment term which is deleted. In addition to that we
can also see the amortization lines getting reversed to the extent of payment terms which is
getting deleted now.

In case of termination, the prorated cash for the month of termination/contraction will become
the Lease Expense for the month of Termination/Contraction. The

25.2 Past dated Termination

In this example we will see the system behavior when the lease is terminated with termination
date in past.

Lease is created with below details

In view transaction we can see that accrual is generated until Mar-20 period
Now, lets terminate the lease with below details

In lease detail report, post termination we can see that, system has accounted the Payment,
interest and amortization expenses only for 20 days
Now in view transaction we can see

As this was a past dated termination, in termination event system has reversed the amortization
and Interest expense accounted for Jan-20 & Feb-20 periods which were accounted earlier

Now as termination date of the lease was 20th Jan 2020, to account the Interest and expense
amount for 20 days in Jan-20 period, below accrual transaction is generated
So in short when a back dated termination is done, system will initially reverse the whole
interest and amortization expenses accounted for that respective month first as a part of
termination event. Later based on the termination date, another accrual transaction will be
generated to account the expense until termination date.

25.3 Future dated termination

In this example we will see the system behavior when a future dated termination is done.

Now we will try to terminate the lease with below details

Post termination we can see that in lease detail report

As the amendment commencement date for the transaction was in Mar-20 period, system
generated the Rou & Liability reversal balances in Mar-20 period itself. The opening liability
balance for the payment term as of Mar-20 period is 31821.6 and after Mar-20 period we have 10
months payment amount to be paid i.e 10000. The interest expense from Mar-20 period to Dec-
20 period is 186.14.

So the total liability balance that needs to be reversed is =31821.6 – (10000)+ 186.14

= 22007.74

The same balance is reduced from ROU balance as well. So the termination event generated is
as follows

In this case, as the termination date is until Dec-20, system will continue to generate the accrual
accounting until Dec-20 period

26 Amortization Until Option End Date

When ever we have early termination options with in the span of the lease system should
amortize till the termination option end date. To meet this requirement a profile option “PN:
Consider Termination And Renewal Options into ROU Amortizations” has been introduced.
If we set this profile to Yes, we can see that, lease is created with below details
This lease has an active option with below details

As the profile “PN: Consider Termination And Renewal Options into ROU Amortizations” is
set to Yes and the option end date is beyond the lease end date, the amortization values for both
payment term as well as option is extended until option end date i.e 31st dec 2022

In the same case when the profile “PN: Consider Termination And Renewal Options into ROU
Amortizations” is set to NO, we can see that
Payment term is amortized until 31st Dec 2021 which is the lease end date and Option amount
continues to amortize until Dec-2022 which is option end date
27 Equipment Lease
The Equipment lease-for Lessee is a new feature and part of Oracle Property Management
systems. This Oracle Equipment lease-for Lessee provides the Lessee to manage their
equipment lease portfolio in an effective and efficient manner and this feature also helps the
lessee to meet the compliance requirement if IFRS and US GAAP.

The reporting requirement of equipment lease is similar to the requirements specified under the
Operating leases which are mentioned earlier i.e calculation of ROU / Liability balances, Interest
calculation, Amortization of ROU balance and Lease liability etc.

27.1 Prerequisites

To get the equipment lease functionality, we need to apply the latest Cumulative patch
mentioned in document 2482062.2.

Once we apply the latest patch, we will get the equipment lease menu which can be linked to
the responsibility. To get the lease equipment function / menu under any responsibility, the
below menu has to be added to the responsibility
The menu name is - PN_EQ_NAVIGATE_CUSTOM. This menu has below 3 options

This page has 3 sections i.e Lease, Setup and Reports.

Lease tab is for creating / querying the leases and to amend the leases.

Setup tab is for setting up the system options

Reports tab is to submit the reports

Inventory Set up

Another prerequisite for using the equipment lease, the user should do necessary set up in the
Oracle Inventory as well. The required set up for Inventory as follows:

 Define Item master

  Define Items
 Define Item Type “Equipment” or Equipment item” and associate with item
 Define Item status “Lease” and associate to the Item

27.2 Setup

The setup for equipment lease involves setting up Term template, Discount Rate Index and
system options. To setup all these we can navigate to setup tab in the equipment lease self-
service page.

27.2.1 Term Template – Under term template, we can query the existing term templates or we
can create a new one. To create a new term template click on Create button in the above page
which will open the below page
Even in equipment lease, we have to create the term template at operating unit level and other
fields are similar to term template setup we have in current property manager. Please note that
checking the active check box in term template level is mandatory and without that the
template will note appear during the lease creation.

Once all the mandatory details are entered at the term template level, we need to click on add a
new row in account distribution section to enter the distribution details

The next step would be to enter all the account details and save the term template

27.2.2 Discount Rate Index

In Equipment lease, we need to setup the discount rate separately and the discount rate defined
under property manager cannot be used.
Discount rates in equipment lease are also defined at Operating unit level and under one
operating unit there can be multiple discount rates and one discount rate can have multiple
discount rates defined.

27.2.3 System options

For using the equipment lease functionality, the system options need to be set at operating unit
level

Accounting Options – This has 3 options All Terms, Normalized Terms Only and None. The
details of how each of these options works is available in property manager user guide

Currency Conversion type – The exchange rate type that is application to the Operating Unit
needs to be set. If this field is set as user, then exchange rate value needs to be entered at lease
level.

Smallest term amount – This setup at system options decides what is the minimum payment
term amount that can be entered during lease creation for a particular OU

Automatic Number Gen- This option decides whether lease number needs to be generated
automatically or it needs to be entered manually during the lease creation
Inventory Item master – Here system will show all the master organizations defined in the
system and based on the master organization selected in the system options, system will derive
the asset attributes like description etc will be derived during the lease creation

Compliance setup – This setup is similar to how we have setup in Property manager System
options which is explained above. In this case, user has an option to select the regime which
they want the Operating unit to be linked and they can select either IFRS or ASC 842 or both. If
option ‘Both’ is selected, then they need to select the primary regime.

27.3 Leases

Under Leases tab, there are two sections i.e

27.3.1 Leases
Under leases we can query the existing lease or we can create a new lease. To create a new lease,
click on create lease option and it opens the below form

In the above form there are different sections like lease details, compliance related setup like
Lease classification, discount rate index applicable to the lease, added rate, if in case if any, lease
term start and end date. These fields are similar to what we have in property manager form as
well.

Once all the these information’s are entered and saved, we can see other tabs to enter other
details of the lease
Parties
Under the parties tab, the lessor and lessee details will automatically enter based on the party
name and the operating unit entered

Assets
When we click on create option under assets, the below page will open

Asset Number – is the unique identifier of the asset. Asset number can be an alpha numeric
value.
Asset description – explains the description of the asset and the values in the asset description
field is derived from the Inventory master item assigned at the system options level for the
Operating unit. The LOV will show all the item descriptions which are defined under the
inventory master organization with item type as “Equipment” or “Equipment-item” along with
“Lease” item status.
Model Number – the unique number provided by the manufacturer for the equipment.

Unit – captures the number of equipment assets captured / bundled under that particular asset

Unit cost- The cost of a single equipment in the Asset line

Total cost – It is a system derived value based on the unit and the unit cost value entered

Install At – shows the physical location of the asset. The LOV for this field is derived from the
location details defined at operating unit / inventory organization level.

Address – System automatically derives the address details based on the location field selected

Effective from – Indicates the starting date of the particular asset. This date can be any date
between the lease start and end date and any payment term created under this lease cannot be
prior to the asset effective date.

Effective to- This indicates that the end date of the particular asset in the Lease. The effective to
date cannot be beyond the Lease termination date and before the Lease commencement date.

Status - The status indicate that whether the asset is active or terminated

Payments
The create payment term in page in equipment lease is similar to the payments tab we have in
property manager and it has an option to capture all the details like term template, payment
term start date, end date, compliance related check boxes like ROU, Liability, Normalization etc

The payments schedules for Equipment leases are enhanced with two new features:

a. Schedule day can be selected by the user until last day of the month, values like 29, 30 and
31 are also allowed.
b. The schedules run from Payment start date to end date. Hence even for monthly frequency,
there is no proration in the first and last month of the lease. For eg if a lease starts on 10th
and payments run from 10th to 9th of the next month, then that’s how the schedules also run.
Options
Payment terms which users are certain of exercising, needs to be captured under options tab
and it can be captured any time during the life span of the lease.

Asset Number – This is an optional field and user can enter any asset number against which
they want to link the options.

Status – user need to select the option status. Only the options which are in ‘Open’ status will be
considered for compliance related calculations

Option Type – user can select the type of option which they want to exercise. The available
options are Early Termination, Purchase, Renewal, Residual.

All other fields like supplier name, supplier site, payment term amount, escalation % etc are
available even in equipment lease form like how it is available in property manager lease
creation form.
27.3.2 View transactions
View transaction form facilitates the user to view all the transactions done on a particular
equipment lease. User can query the leases based on Operating unit, lease number, currency etc
and view the transaction details for a particular lease.

Users can click on the transaction number and drill down to transaction / stream details that are
effected in that particular transaction.

Users can also drill down the journal lines against each of these transactions using the view
transaction form

27.4 Reports

Using the reports tab in equipment leases page, user can submit the request / concurrent
programs. The page provides the option to select the language in which the report needs to be
run, the report layout options

28. Transaction flow / Period end process under equipment lease

In equipment leasing the transaction flow will be
 Perform edit Run the
Approve the Export the Run the
Create new / amend Transfer
Schedules for lines to create
lease activities for normalized
the period Payables accounting
agreements existing lines to GL
program
Lease program

28.1 Create a new lease agreement

Users can create the new lease by navigating to Lease tab

Enter the asset details against asset for which lease is created

Enter the payment term details

 The next step would be to finalize the lease. Same can be done by changing the lease
status to Final

Once the lease approval status is changed to final, schedule and items program will
automatically get trigged and the generated schedules can be seen in the request output.

28.2 Perform edit / amend activities for existing Lease

The next step would be to perform any amendment, termination etc if any. Under equipment
lease, the amendment can be done by following below steps.

Query the lease which needs to be amended

Select the action button in the above screen which will open the amendment form.

Enter all the amendment details and click on apply. Post that other tabs will appear. Now we
can navigate to asset tab / Payment tab and complete the amendment transaction. In our
example, we will add a new payment term. So navigate to payments tab
Once we click on save button, schedule and items program will automatically get triggered and
the schedule items program will show the revised schedule details.

28.3 Approve the Schedules for the period

To approve the schedules in equipment lease, we need to run the “Approve or Cancel Approval
of Equipment Schedules”
Once the program is completed, the output file will show the details of the schedule that got
approved.

28.4 Export the lines to Payables

Once the lines are approved, the next step would be to export the lines to Payables. The lines
can be exported to AP by running the program
Once the program completes successfully, the output file shows the details of the invoices that
are exported to AP

28.5 Run the Transfer normalized lines to GL program

Once the lines are exported to payables, to generate the accrual event, we need to run the
transfer normalized lines to GL program

Once this program is completed successfully we can see the accrual event generated in view
transactions page

Like property manager, even in equipment lease the accrual event can be generated only for
prior periods and you cannot generate the accrual event for the future periods.

28.6 Run Create accounting program.

The next step would be to run the create accounting program to interface the Booking and
accrual events to GL.

29. Reports
Under equipment leasing solution, below 3 reports are supported
  Portfolio Summary
 Portfolio Detail
 Lease Detail

The report layout, calculation logic / formulas applied to derive the interest rate, amortization
amount, Present value of the future cash flows etc will remains same as it is there under
property manager IFRS. The details of all the reports and formula’s are explained in detail
above.

30. Foreign Currency Equipment Leases

Even under equipment lease, we can create leases in other currency apart from functional
currency. Depending on the currency conversion set at equipment lease system options, system
will derive the exchange rate type. If the exchange rate type is set as user in system options,
then user can enter the exchange rate during the lease creation and the same will considered for
all future calculation for the lease. If the exchange rate type is set to Corporate or any other in
system options, the conversion will happen based on the exchange rate defined for that
particular exchange rate type.

Please note that the exchange rate derivation logic in equipment lease is same as it is derived in
property manager IFRS solution.

31. Approval workflow

The Finalization of Lease can be controlled by an approval process as well. If the user wish to
use approval mode by using the Profile option: PN: Use Lease Approval Workflow with value
“Yes”.

Name of the Work flow: PN Lease Approval Workflow

It also enable the user to configure the Approval Management (AME) and process the approval
as per the approval hierarchy defined by the user.

32. List of APIs available for Equipment Lease

The equipment lease has following APIs

 Lease creation/update
 Create/ update parties
 Create/update Asset
  Create/update option

All of these are available in the package named PN_EQUIP_LEASE_PUB (Upgrade Lease
API).

33.Few calculation Scenario’s

In below examples, we will try to understand how Present value and Interest calculation
is done. Please note that for understanding purpose, only few periods calculation is
explained in the example

33.1 When the schedule day is in the middle of the month

Lease details are as follows

Start Date End date Proration Schedule Interest Amount
Rule Day rate
01-Jul-2018 31-Dec- 365 15 7% 100
2019

The Present value and Interest calculation for the lease will be

Period Present value Interest

Jul-18 100/(1+0.07/365)^14= 99.73 **1708.88*7%/365*14
+
(1700-100)*7%/365*17
= 9.81

Aug-18 100/(1+0.07/365)^45=99.14 1618.71*7%/365*14

+
(1618.71-100)*7%/365*17
= 9.30

Note –
 ** 1708.88 is the total liability at the beginning of Jul-18 period

33.2 When a new Payment term is added

Lease details are as follows

Start Date End date Proration Schedule Interest Amount
Rule Day rate
 01-Jul-2018 31-Dec- 365 15 7% 100
2019

ROU / Liability Balance before the new payment term addition is = 1708.88

Now we added a new payment term to the same lease and the payment term has below
details

Start Date End date Proration Schedule Interest Amount

Rule Day rate
01-Jul-2018 31-Dec- 365 1 7% 500
2019
After adding a new payment term, the amount calculated for the earlier payment term will
remain unchanged and system will calculate the ROU / Liability balance etc to the extent of newly
created payment term

The Present value and Interest calculation for the lease will be

Period Present value Interest

Jul-18 500/(1+0.07/365)^0= 500 (8567.39-500)*7%/365*31
= 47.96

Aug-18 500/(1+0.07/365)^31=497.04 (8115.35-500)*7%/365*31

=45.27

Note –
 As the schedule day is 1, for Jul-18 period the number of days for the month is
considered as 0
 The ROU and Liability Balance calculated to the extent of New payment term is
8567.39. So a revision event with below balance has been created by the system

33.3 When calculation frequency is ‘Daily’

Lease details are as follows

 Start Date End date Proration Schedule Interest Amount
Rule Day rate
01-Jul-2018 31-Dec- 365 15 3% 100
2019

At System options setup, the calculation frequency is set to “Daily”

The Present value and Interest calculation for the lease will be

Period Present value Interest

Jul-18 100/(1+0.03/365)^14= **1760.17- ((1760.17/(1+0.03/365))^14)
99.89 +
(1760.17-100)-
(((1760.17-100)/(1+0.03/365))^15)
= 4.07

Aug-18 100/(1+0.03/365)^45=99.63 1664.25- ((1664.25/(1+0.03/365))^16)

+
(1664.25-100)-
(((1664.25-100)/(1+0.03/365))^12)

=3.74

Note –
 In the above calculation 1760.17 and 1664.25 are the beginning liability amount
for Jul and Aug-18 period respectively.
 For Jul-18 we have considered only 29 days (14 days before the schedule day
and 15 days after the schedule day) because as per the calendar setup, July-18
has only 29 days. Similarly for Aug-18 period only 28 (16 + 12) days is
considered for calculation as Aug-18 period starts from 30th of Jul and ends on
26th of Aug as per the calendar setup.

33.4 When Proration rule is 360

Lease details are as follows

Start Date End date Proration Schedule Interest Amount
Rule Day rate
01-Jul-2018 31-Dec- 360 1 5% 100
2019

The Present value and Interest calculation for the lease will be
 Period Present value Interest
Jul-18 100/(1+0.05/360)^0= 100 (1737.78-100)*0.05/360*30
= 6.82
Aug-18 100/(1+0.05/360)^30=99.58 (1644.6-100)*0.05/360*30
= 6.43

Note -
 With 360 days proration rule, all the months are considered to be having 30 days.
 For Jul-18 period, since schedule day is 1, the number of days is considered as 0
 In this case, since schedule day is 1, the monthly schedule payment amount i.e 100
has been subtracted from the beginning liability i.e 1737.78 and on the remaining
liability amount interest amount is calculated.

33.5 When Proration rule is Days/Month

Lease details are as follows

Start Date End date Proration Schedule Interest Amount
Rule Day rate
01-Jul-2018 31-Dec- Days/Month 1 5% 100
2019

The Present value and Interest calculation for the lease will be
Period Present value Interest
Jul-18 100/(1+0.05/365)^0= 100 (1737.6-100)/12*0.05*30/31
= 6.82
Aug-18 100/(1+0.05/365)^31= 99.58 (1644.42-100)/12*0.05*30/31
=6.44

Note -
 With Days/Month proration rule, the beginning liability is divided between 12
periods equally
 In the above calculation we have taken 30 days for both the months because the
schedule date for the payment term is 1st of the month.

33.6 When Lease / payment term is extended

Lease details are as follows

Start Date End date Proration Schedule Interest Amount
Rule Day rate
 01-Jul-2018 31-Dec- 365 1 5% 100
2018

So ROU / Liability balance for the lease during lease creation is 593.73. Now the lease is
exetended up to 31st Dec 2019. So system will calculate the revised ROU and liability
balance for the period 01-Jan-2019 to 31st Dec 2019 and the revised amount will be
1143.86. So revision event is generated for the same amount

Some of the amendments required use of latest discount rate for recalculations. For
example, lease rainy was our payment term contraction. During recalculations the
system checks for the discount rate at the time of recalculation, and uses the new rate for
all the downstream recalculations.

34.Reference Documents
Below documents can be referred to know more about the IFRS enhancement in
Property Manager and Equipment lease

E-Business Suite Release 12: Oracle Property Manager IFRS & Equipment Lease
Information Center (Doc ID 2482062.2)

Enhancements to Property Manager for Compliance with New Accounting Standards

for Property and Equipment (Doc ID E-Business Suite Release 12: Oracle Property
Manager IFRS & Equipment Lease Information Center (Doc ID 2482062.2)

Enhancements to Property Manager for Compliance with New Accounting Standards

for Property and Equipment (Doc ID 2388210.1)

Sub Ledger Accounting Configuration for IFRS16 and ASC842 Accounting from
Property Manager including Equipment (Doc ID 2396463.1)

IFRS & Equipment Lease - Period Closure Process Document (Doc ID 2482582.1)

PN to AP Payment Term Linking For Liability Flag (Doc ID 2603022.1))

Sub Ledger Accounting Configuration for IFRS16 and ASC842 Accounting from
Property Manager including Equipment (Doc ID 2396463.1)

IFRS & Equipment Lease - Period Closure Process Document (Doc ID 2482582.1)

PN to AP Payment Term Linking For Liability Flag (Doc ID 2603022.1)