Initial Configuration of lease

After configuring your lease you can see how to utilize Calculator in Monthly process

Initial measurement of the lease liability

• Commencement Date - where to start the calculation (Start date in lease agreement).
• Interest rate implicit in lease/ Lessee's incremental borrowing rate - if implicit rate is entered then it would be used. If it is empty - incremental borrowing rate is used.
  • Incremental borrowing rate is defined within the company what would be the rate for similar amount of loan from bank with given terms.
• Advance/Arrears (1/0) - select if payments are in Advance for the month or after the month. Affects the interest calculation (In Advance - Opening balance - payment, In Arrears - from Opening Balance only).
• Number of Payments/Payment Frequency - how to place payments of Fixed payment amount.
• Payment Amount - total payment paid to the Vendor within one payment period.
• First Instalment Date - depreciation and interest can be calculated before the first payment. Most likely same period as Commencement date.
• Non-lease Components - amount from "Payment Amount" that is directed for services in lease - not part of Lease Liability.
• Fixed Lease Payment: "Payment Amount" - "Non-lease components". Amount from which Liabilities and RoU would be based on.
• Additional last Payments
  • Residual Value - Added as last discounted payment and increases Liabilities from start.
  • Exercise price of Purchase - Added as last discounted payment and increases Liabilities from start.
  • Penalty for terminating - Added as last discounted payment and increases Liabilities from start.
• Lease Liability - Calculated sum of lease payments and Interest. Present value of lease and additional last Payments.

Lease Term

• Contractual Term (months) - Lease term in months.
• Non-Cancellable Term - Minimum term of lease: calculations done are based minimally on this amount e.g.: if Contractual is 24 months and non-cancellable is 36 (maybe we have done an extension) it would put "Lease Term" - months calculated as 36.
• Option to Extend - if beforehand we have a contract and we have already extended this lease before migrating to this excel. Adds to contractual term to get real one.

• Lease Term - Calculated value for the term.

Initial measurement of RoU

• Lease Liability - Calculated sum of lease payments and Interest. Present value of lease and additional last Payments.
• Additional RoU amounts - not increasing Liabilities
  • Lease Payments made on or before - increase initial RoU, increasing monthly depreciation.
  • Initial Direct Cost - increase initial RoU, increasing monthly depreciation.
  • Estimated cost for dismanting/restoring asset - increase initial RoU, increasing monthly depreciation.

Depreciation Term

• Title of Ownership - if selected Yes, lease will depreciate over period entered in "Useful life of RoU"
• Option to Purchase - for IFRS16 - field is informational, for ASC842 - Used to determine if lease is Operating or Finance.
• Useful Life of RoU - A different term than Lease term (usually longer) by which the asset is depreciated, continuing even after end of Lease Term.
• Lease Term - Calculated value for the term. Entered in previous steps
• Depreciation Term - calculated field which select between the two values:
  • "Lease Term" - if title of Ownership is not selected
  • "Useful life of RoU" - if title of Ownership is selected

Lease Classification

• Lease Ownership - field transferred from above (Title of ownership in "Depreciation Term" section).
• Option to purchase - field transferred from above (Option to purchase in "Depreciation Term" section).
• Is Lease term major part of asset life - calculated from useful life (if entered) and lease term:
  Lease term > 0,75 * Useful life of RoU
  Meaning if you lease for majority of asset's life it will be considered a Finance Lease.
• Fair Value of Asset - Value of asset to fully buy on the term.
• Does the PV of lease payments + RV guaranteed equals or exceeds substantially all of the fair value of the underlying asset - Is Fair value * 90% less than Lease Liabilities. If yes - Finance classification.
• Is underlying asset of such a specialized nature that it is expected to have no alternative use to lessor at end of lease term? - By standard if no other use is left for asset, you calculate it as Finance lease.
• Lease Classification - Based on values in this section (if any of fields are Yes) selects type of lease Finance. Otherwise it is considered an Operating lease.