Table of Contents

Administration | Users

User Roles

Below is the list of user roles and their associated permissions.

Administration | Reporting Entity

Reporting Entity

Reporting Entity is the financial reporting entity for which you produce financial statements. At your organization, a reporting entity might be known as a company, business unit, subsidiary, fund, institution, organization or office. 

In Administration/GL Accounts, each reporting entity has its own set of GL Accounts. 

There is no hierarchy for reporting entities in LeaseCrunch; instead, users select the reporting entities to combine for reporting at My Leases and each combination can be saved as a Custom View.

Accounting Standard 

Selecting an Accounting Standard at Administration/Reporting Entity of either FASB ASC 842 or IFRS 16.

If a lease needs to be reported under both FASB ASC 842 and IFRS 16, we recommend that you enter the same lease twice if you would encounter any of the following situations:

• Initial Application Dates. Depending on the organization, different initial application dates (e.g., 1/1/19 for IFRS, 1/1/22 for FASB) could drive differences in calculations:

  • Different discount rates

  • Different existing balances under previous accounting guidance affecting initial ROU Asset value

  • Different transition policy election FASB/IFRS could impact calculations.  See Accounting Policy templates at Administration/Policies.

• Lessee:

  • Operating Leases. IFRS 16 excludes Operating leases. A lease classified as operating under FASB ASC 842 would be a finance lease under IFRS 16.

  • Footnote:  Selecting the IFRS 16 footnote excludes operating leases from the export. 

  • Minimum Exemptions. IFRS has a $5,000 exemption limit that has no corollary for FASB.

  • Discount Rate. For nonpublic companies, the FASB allows for the risk-free rate election for the discount rate and IFRS does not.

  • Lease Revisions. If a lease modification or a lease remeasurement resulted in a change in classification under FASB from finance to operating lease, the revised lease would have to be entered as a finance lease to properly report under IFRS 16.

  • Index-Based Payments. Lease payments based on an index need to be recorded as a remeasurement under IFRS and a variable expense/revenue under FASB, although this might be immaterial.

• Lessor:

  • Classifications. FASB ASC 842 and FRS 16 have different Classifications and therefore, different accounting for each Classification. Therefore, it is recommended you enter each lease twice for reporting under each standard.

    • FASB ASC 842: Operating, Sales-Type, Direct Financing

    • IFRS 16: Operating, Finance

Initial Application Date:

Summary Guidance:  The Initial Application Date is the beginning of the earliest period presented in the financial statements in which the lease standard is first applied. 

An election can be made to not restate prior periods.

For a non-public company not restating prior periods and with a December 31 fiscal year end, the Initial Application Date is January 1, 2022.

For a non-public company not restating prior periods and with a June 30 fiscal year end, the Initial Application Date is July 1, 2022.

Download this file to calculate your initial application date: IAD Calculator.xlsx

Detailed Guidance: To select your Initial Application Date, you must first determine your Effective Date.  U.S. private companies have an Effective Date for fiscal years beginning after December 15, 2021, while U.S public companies and international companies (under IFRS 16) have an Effective Date for fiscal years beginning after December 15, 2018.  Companies have 2 options for an Initial Application Date:

Example:

Click here for Example

Example:  Company with 1 prior period presented.

Open

Technical Guidance:

Local Currency:

Summary Guidance:  Local Currency is the currency used to pay your lease obligations (typically the currency used in the entity's particular geographical location).  Local Currency is used in the following tabs:

Administration | Reporting Entity:  User selects the Local Currency default for your Reporting Entity.

Add Lease:  The Local Currency default from Administration | Reporting Entity will appear, but the user is able to select a different currency.  

My Leases:  Local Currency reports can be exported by selecting the Local Currency tab.

Functional Currency:

Summary Guidance:  Functional Currency is the currency of the primary economic environment in which your entity conducts its business.  The functional currency is usually either the local currency or the currency of its parent company.

Technical Guidance:

Administration | Policies

Require Review + Approval for every new Lease created:

This feature requires at least 2 users, as the user submitting a lease for approval must be different than the user approving the lease. When you select the Require Review policy at Administration/Policies, the following is true for any subsequently entered lease or lease revision:

• Review Tab: When adding a lease, the Review tab only appears when Require Review policy is selected. The Review tab requires a user to submit a lease for review by another user.

  • Note: Users can optionally choose to send an email notification to reviewer(s) when a lease is ready for review. A notification cannot be sent to the user entering the lease.

• Incomplete Status: Before submitting a lease for review, the lease remains in Incomplete status even if all required data fields are entered.

• Review Status: After submitting a lease for Review, the lease status changes from Incomplete to Review.

• Reporting: Leases in either an Incomplete or Review status cannot be exported at My Leases.

• Reviewer: Any User can review and approve a lease in review except the last person to edit the lease. Approving a lease changes the status from Review to Complete and the lease can then be included in My Leases exports.

• Lease Edits: When a lease is edited, the lease status is returned to Review, requiring approval by any user who did not last edit the lease.

  • Note: A lease created before Require Review is selected at Administration/Policies will not require a review even for edits made after Require Review is selected at Administration/Policies.

Administration | GL Accounts

Fixed Asset:

Fixed Asset GL Accounts are only used if you have a Finance Lease with an ROU Asset Life greater than the Lease Term (entered in the Add Leases tab).  The final journal entry will transfer the remaining ROU Asset balance to a Fixed Asset GL Account. 

GL Accounts for Existing Balances under Previous Lease Accounting Guidance:

GL Accounts at Administration/GL Accounts under the heading “Existing Balances Under Previous Lease Accounting Guidance” are used to remove balances from your opening balance sheet upon initial application of ASC 842 and/or IFRS 16.  After entering your GL Accounts (or modifying the default GL Accounts), follow the steps below:

If your existing balance under previous lease accounting guidance is a liability:

1. Go to Add Lease screen under the section “Lease Payments and Classification.”

2. Select a Liability GL Account from the dropdown.

3. Enter the existing balance as a positive value.

The initial journal entry will remove the liability by debiting the existing balance entered on Add Lease screen. For Lessees, the offsetting credit will be to the ROU Asset. For Lessors, the offsetting credit will be to Revenue or Deferred Rent depending on the circumstances.

If your existing balance under previous lease accounting guidance is an asset:

1. Go to Add Lease screen under the section “Lease Payments and Classification.”

2. Select an Asset GL Account from the dropdown.

3. Enter the existing balance as a positive value.

The initial journal entry will remove the asset by crediting the existing balance entered on Add Lease screen. For Lessees, the the offsetting debit will be to the ROU Asset. For Lessors, the offsetting credit will be to Revenue, Deferred Rent or Initial Direct Cost Asset depending on the circumstances.

Lessee Examples

General Ledger Accounts for Revisions:

General Ledger (GL) Accounts at Administration/GL Accounts under the heading “Revisions” have two different GL Account types:

1. Suspense Account for Transferring Balances
2. Gain/Loss Account

Administration | Currency

Foreign Exchange Rates:

Summary Guidance:  When entering foreign exchange rates in the fields “Currency (From-To),” the “From” is the currency you are starting with and the “To” is the ending currency (i.e. the currency you are translating to).  For example:

• From = Local Currency of Lease; let’s assume USD

• To = Reporting Currency of a reporting entity; let’s assume EUR

• “Currency (From-To)” = USD - EUR  (see below: $1 USD = 0.85€ EUR at EOM at 2024-01)

Open

EOM Rate = Used to translate ending balance sheet values

Ave Rate = Used to translate the transactions made throughout the month

Download the below files displaying the translation of each column in the Amortization Schedule.

Lessee:

• Amortization Schedule for Functional Currency: Functional_Currency_Translation_Lessee.xlsx

• Amortization Schedule for Final Reporting Currency: Final_Reporting_Currency_Lessee.xlsx

Lessor:

• Amortization Schedule for Functional Currency: Functional_Currency_Translation_Lessor.xlsx

• Amortization Schedule for Final Reporting Currency: Final_Reporting_Currency_Lessor.xlsx

Foreign currency translation is guided by ASC 830, Foreign Currency Matters.
Monetary assets and liabilities (cash, accounts receivable, accounts payable, and long-term debt) are measured at the end of each reporting period based on the then current exchange rates, resulting in foreign currency gains and losses, which are recorded in current period net income. 

Nonmonetary assets and liabilities (inventory and property, plant, and equipment) are initially measured using historical exchange rates. Because there should be no further reason for translation, all aspects of the ongoing accounting for these items (e.g., depreciation, impairment, lower of cost or market) should be measured in terms of the operation’s functional currency. In other words, you translated it once at the start date of the lease, no need to keep translating it.

Technical Guidance:

My Leases

Lease Status:

Incomplete: This status indicates that all required fields are not filled out. Leases in an Incomplete status cannot be exported at My Leases.

Review: This status is only available if Require Review policy is selected at Administration/Policies. Review status requires a reviewer (other than the user who last edited the lease) to approve the lease. Leases in a Review status cannot be exported at My Leases.

Complete: This status indicates all required fields are entered. If Require Review Policy is checked, this lease was also approved by a reviewer.

Deleted: This lease was deleted. Leases in a Deleted status cannot be exported at My Leases.

Data By Lease

This selection produces an additional tab in an export called “Data By Lease” with values for each selected lease for the GL Start Date to the GL End Date. This feature is currently available for the Amortization Schedule export.

Foreign Currency Translation (Functional Currency & Reporting Currency)

Summary Guidance:  Ending balance sheet values are generally translated at EOM rate, while all other transactions are translated at the Average rate, except for balances translated at their Functional Currency at Historical rate. See Administration | Currency for how to enter EOM and Average foreign exchange rates.

Download the below files displaying the translation of each column in the Amortization Schedule.

Lessee:

• Amortization Schedule for Functional Currency: Functional_Currency_Translation_Lessee.xlsx

• Amortization Schedule for Final Reporting Currency: Final_Reporting_Currency_Lessee.xlsx

Lessor:

• Amortization Schedule for Functional Currency: Functional_Currency_Translation_Lessor.xlsx

• Amortization Schedule for Final Reporting Currency: Final_Reporting_Currency_Lessor.xlsx

Foreign currency translation is guided by ASC 830, Foreign Currency Matters.
Monetary assets and liabilities (cash, accounts receivable, accounts payable, and long-term debt) are measured at the end of each reporting period based on the then current exchange rates, resulting in foreign currency gains and losses, which are recorded in current period net income. 

Nonmonetary assets and liabilities (inventory and property, plant, and equipment) are initially measured using historical exchange rates. Because there should be no further reason for translation, all aspects of the ongoing accounting for these items (e.g., depreciation, impairment, lower of cost or market) should be measured in terms of the operation’s functional currency. In other words, you translated it once at the start date of the lease, no need to keep translating it.

Technical Guidance:

Add Lease Screen

Local Currency:

Summary Guidance:  Local Currency is the currency used to pay the lease obligations (typically the currency used in the entity's particular geographical location).  Local Currency is used in the following tabs:

Administration | Reporting Entity:  User selects the Local Currency default for your Reporting Entity.

Add Lease:  The Local Currency default from Administration | Reporting Entity will appear, but the user is able to select a different currency. 

My Leases:  The Local Currency tab under Reports will produce exports in your Local Currency.

Historical Exchange (fx) rate:   

Summary Guidance:  The Historical fx Rate is the exchange rate from the local currency to the functional currency at the start date of the lease.  It is used to translate (throughout the term of the lease) the Lessee’s ROU Asset and Amortization Expense or Lessor’s Deferred Rent and Revenue from the local currency to the functional currency.

Add Revision:  Adding a Revision is how you amend, modify, remeasure or change a lease at a date before the end of the lease. The software will freeze a version of the lease and then allow you to change parameters that only affect the lease on/after the date of the Revision. Upon remeasuring the lease for a Revision, you will either input the Historical fx Rate from the previous lease version or input a new Historical fx Rate on the date of the Revision. No technical guidance exists as to which method to use other than a SEC inquiry response that follows the same guidance as to when to update the Discount Rate or reassess Classification. The SEC response is to input a new Historical fx Rate on the date of the Revision (if your Local Currency is different than your Functional Currency) for the following Revision types:

• All Modification Revisions (amendment of a lease)

• Selected Remeasurement Revisions relating to:

  • Reassessment (Lessee) of: a) lease term or b) purchase option

  • Exercise (Lessor) of: a) lease term or b) purchase option

  • IFRS 16 ONLY: Changes in payments (Lessee) or receipts (Lessor) due to payments tied to a floating interest rate (e.g., LIBOR) used to determine those payments

The software will utilize the same Historical fx Rate (entered in the previous version of the lease) for all other Revision types.

Technical Guidance:

Start Date:

Summary Guidance: The Start Date is either:

• Initial Application Date for leases that have a Commencement Date prior to the Initial Application Date. This date is used to recognize and measure leases, as determined by the transition method that the entity elects.

• Commencement Date for leases that begin after the Initial Application Date.

Commencement Date is defined as the date on which the lessor makes an underlying asset available for use by a lessee.

Technical Guidance:

End Date:

Summary Guidance: The End Date is typically the last day of the lease. However, you must consider early termination options and renewal options. If you determine that you will exercise an early termination option because there is not an economic incentive to continue the lease, then use the date of the early termination option as the End Date. If you determine that you will exercise one or more renewal options, because there is an economic incentive to do so, use the last day of the renewal option(s) you are reasonably certain to exercise. A lease is no longer enforceable when both the lessee and lessor have the right to terminate without permission from the other party with no more than an insignificant penalty.

Technical Guidance:

Lease Term:

Summary Guidance: The Lease Term is the number of months from the Start Date to the End Date.

1. The Start Date is not the date you sign the lease but instead is the Commencement Date of the lease, which is defined as the date on which the lessor makes an underlying asset available for use by a lessee.

2. The End Date is typically the last day of the lease. However, you must consider early termination options and renewal options. If you determine that you will exercise an early termination option because there is not an economic incentive to continue the lease, then use the date of the early termination option as the End Date. If you determine that you will exercise one or more renewal options, because there is an economic incentive to do so, use the last day of the renewal option(s) you are reasonably certain to exercise. A lease is no longer enforceable when both the lessee and lessor have the right to terminate without permission from the other party with no more than an insignificant penalty.

Technical Guidance:

Lease Term Guidance Wizard: This wizard is meant to help you in 2 ways:

1. Guide you to correctly identify the Lease Term as there involves judgment with regards to early termination options and renewal options.

2. Create an audit trail of your answers for review by you, management or your auditors.

ROU Asset Life:

Summary Guidance: The ROU Asset Life (applicable to Lessee only) is almost always the same as the Lease Term. However, for finance leases in which the lessee is reasonably certain to exercise an option to purchase the underlying asset, the ROU Asset Life is the useful life of the asset (i.e., how long the asset will be available for your use), which can be longer than the Lease Term. The ROU Asset is amortized to expense over the ROU Asset Life. For a ROU Asset that should not be amortized, enter 999,999,999 in the ROU Asset Life field. This will reduce the amortization expense to either 0.00 or an immaterial amount.

The software uses a full month convention, amortizing evenly over the number of months in the ROU Asset Life. If your lease ends in the middle of the month, the ROU Asset Life defaults to Term minus one month to stop the amortization in the second to last month. You can update Asset Life as needed for different expense recognition. See Example below.

Technical Guidance:

Discount Rate:

Summary Guidance: The Discount Rate should be the annual rate implicit in the lease.  The implicit rate is the rate derived when:

• FASB: PV of Lease Payments + PV of Lessor’s Residual Value = Fair Value of Asset (less investment tax credits) + Lessor’s Initial Direct Costs (Download FASB Calculator)

• IFRS: PV of Lease Payments + PV of Lessor’s Residual Value = Fair Value of Asset + Lessor’s Initial Direct Costs (Download IFRS Calculator)

  • Note: The PV of Lease Payments is a different calculation than the sum of Total Payments. The sum of Total Payments must be greater than the Fair Value of the underlying asset in order to arrive at an implicit rate.

Lessee only:

• If inputs to the implicit rate are not readily determinable, which is often the case, the Discount Rate is then the lessee's incremental borrowing rate (i.e., what the lessee can borrow under the same payment stream and timeframe). 

• Alternatively, non-public companies subject to FASB 842 (not allowed under IFRS 16) can elect by asset class to use a risk-free rate of return as the discount rate. The risk-free rate can only be used if the implicit rate is not readily determinable. The risk-free rate for various time periods that approximate the Lease Term can be found at: US Treasury Rates

Add Revision: The following Revision types will require you to input a new discount rate on your Revision Date:

• Modification (amendment of a lease)

• Remeasurement of: a) lease term or b) purchase option

• IFRS 16 ONLY: Change in payments due to payments tied to a floating interest rate (e.g., LIBOR) used to determine those payments

The software will utilize the same Discount Rate (entered in the previous version of the lease) for all other Revision types.

Technical Guidance:

Incentives Received (Lessee) / Incentives Paid (Lessor):

Summary Guidance: Incentives Received (lessee) or Incentives Paid (lessor) are:

1. Payments (at or before the Start Date) made by the lessor to the lessee (e.g., lessor pays cash to lessee for a furniture purchase).

2. The reimbursement or assumption by a lessor of costs of a lessee (e.g., lessor pays off lessee's remaining payments from a previous office lease in order to have them relocate early).

Any payments by the lessor to the lessee after the Start Date should not be included in this field. Instead, these payments should be:

• Lessee: entered as a negative payment stream in the Lease Payments section of the software

• Lessor: entered as a negative receipts stream in the Lease Receipts section of the software

Technical Guidance:

Initial Direct Costs:

Summary Guidance: Initial Direct Costs are costs that would not occur if the lease is not signed (e.g., commissions, payments made to an existing tenant to incentivize that tenant to terminate its lease). Initial Direct Costs do not include legal fees or tax advisory fees as those fees are not dependent on signing the lease.

Technical Guidance:

Add Lease Payment Stream (Lessee):

Summary Guidance: For a comprehensive list of payments that are considered Lease Payments, see our Technical Guidance section below. In summary, Lease Payments for Lessees include:

• fixed payments (including lease incentives paid after the Start Date, which reduce Lease Payments). If the incentives are received at or prior to the Start Date, include them in the Incentives Received field in the software.

• variable lease payments (see details and examples below) that depend on an index or rate that are measured on the Start Date

• purchase cost at the End Date of a lease

• termination fees

• residual value guarantees (only include amounts probable to be paid)

• reimbursement of lessor costs (e.g., real estate taxes in an office lease) as long as they are not variable (e.g., no true up)

• nonlease component costs like common area maintenance (CAM) if lessee has made a policy election to combine lease and nonlease components.

If you desire to capture payments that do not fit the definition of Lease Payments in the software, those payments can be entered in the Variable Expense and Non-Lease Payments tab.

Variable lease payments are defined as payments made by a lessee to a lessor for the right to use an underlying asset that vary because of changes in facts or circumstances occurring after the commencement date (Start Date), other than the passage of time. As summarized in the table below, variable lease payments are either a:

1. Lease Payment (entered in the Lease Payments & Classification tab); or

2. Variable Lease Expense (entered in the Variable Expense and Non-Lease Payments tab)

Technical Guidance:

Add Lease Receipt Stream (Lessor):

Summary Guidance: For a comprehensive list of receipts that are considered Lease Receipts, see our Technical Guidance section below. In summary, Lease Receipts for Lessors include:

• Fixed receipts

• Variable lease receipts (see details and examples below) that depend on an index or rate that are measured on the Start Date

• Purchase cost at the End Date of a lease

• Termination fees

• Residual Value Guarantees

  • IFRS 16: Include in Lease Receipts the full (not just amounts probable) Residual Value Guarantees from Lessee or third parties. At the end of the term, if the amount received is different from what is initially entered, select Add Revision to enter actual receipts in the “Lease Receipts & Classification” tab.

  • FASB ASC 842: Exclude from Lease Receipts the Residual Value Guarantees from Lessee or third parties. At the end of the term, record any amounts received as a Variable Lease Receipt (in the Variable and Non-Lease Receipts tab).

• Reimbursement of lessor costs (e.g., real estate taxes in an office lease) as long as they are not variable (e.g., no true up)

• Nonlease component costs like common area maintenance (CAM) if Lessor has made a policy election to combine lease and nonlease components.

• Lease incentives paid after the Start Date, which reduce Lease Receipts

Sales tax or similar taxes (e.g., VAT) from revenue producing activities:

• Lessee is the obligor (most often the case) and Lessor is collecting and remitting to tax authority: record net on the balance sheet (i.e., do not record as variable revenue and expense). Under FASB: 842-10-15-39A, if Lessor is the obligor, Lessor has a policy election to record net on the balance sheet.

Property tax or other taxes assessed on Lessor as owner of the underlying asset: record as variable lease revenue and expense.

If you desire to capture receipts that do not fit the definition of Lease Receipts in the software, those receipts can be entered in the Variable and Non-Lease Receipts tab.

Variable lease receipts are defined as receipts made by a lessee to a lessor for the right to use an underlying asset that vary because of changes in facts or circumstances occurring after the commencement date (Start Date), other than the passage of time. As summarized in the table below, variable lease receipts are either a:

1. Lease Receipt (entered in the Lease Receipts & Classification tab); or

2. Variable Lease Revenue (entered in the Variable and Non-Lease Receipts tab)

Technical Guidance:

Residual Value Guarantee:

Summary Guidance: Residual Value Guarantees are guarantees made by the Lessee or a third-party to the Lessor, that ensures that the value of the underlying asset returned to the Lessor at the end of the lease, will be at a specified amount.

When calculating Lease payments, Residual Value guarantees are accounted for differently between FASB ASC 842 and IFRS 16, and also differently for Lessee and/or Lessor

1. For Lessee:

   1. FASB ASC 842 & IFRS 16: Only amounts expected and probable to be payable at the end of the lease term is added to the Lease Payments. If there is a change in the amount probable, select Add Revision to enter actual payments.

2. For Lessor:

   1. FASB ASC 842: Exclude from Lease Receipts the Residual Value Guarantees from Lessee or third parties. At the end of the term, record any amounts received as a Variable Lease Receipt (in the Variable and Non-Lease Receipts tab).

   2. IFRS 16: Include in Lease Receipts the full (not just amounts probable) Residual Value Guarantees from Lessee or third parties. At the end of the term, if the amount received is different from what is initially entered, select Add Revision to enter actual receipts in the “Lease Receipts & Classification” tab.

Residual Value Guarantees, together with the rest of the Lease Payments, are utilized in the determination of Lease classification under FASB ASC 842 and IFRS 16 as follows:

1. FASB ASC 842

   1. Residual Value Guarantee by Lessee is included in the determining Lease classification as a Sales-Type Lease

   2. Residual Value Guarantee by a third-party is only included in determining lease classification as a Direct Financing Lease

2. IFRS 16

   1. Both Residual Value Guarantee by Lessee and/or third-party are included in determining lease classification as Finance Lease or Operating Lease

Technical Guidance:

Classification:

Summary Guidance: There are several Lease Classification depending on whether the party is a Lessee or a Lessor under FASB and IFRS.

For FASB, A lease that meets at least one of the criteria below will be classified as a Finance Lease (if a Lessee) or Sales-Type Lease (if a Lessor).
For IFRS, A lessee or lessor will likewise classify leases that meet the below criteria as Finance Leases. All other leases will be classified as Operating Leases.

Classification Criteria:
a. Transfers ownership to lessee
b. Option to purchase that lessee is reasonably certain to exercise
c. Lease Term is a major part (e.g., 75%) if its economic life (life of the asset by all users, not just the lessee)
d. Present value of Lease Payments and residual value guarantee by lessee that is substantially all (e.g., 90%) of the fair market value
e. Leased asset has no future use by lessor

Additional Classification Criteria for FASB ASC 842 Lessors:

Additional Classification Criteria for IFRS 16
Classification criteria is not always conclusive. If it is clear from other features that the lease does not transfer substantially all the risks and rewards incidental to ownership of an underlying asset, the lease is classified as an operating lease.

Add Revision: The following Revision types will require you to reassess the classification:

• Modification (amendment of a lease)

• Remeasurement of: a) lease term or b) purchase option

• IFRS 16 ONLY: Change in payments due to payments tied to a floating interest rate (e.g., LIBOR) used to determine those payments

The software will utilize the same Classification (entered in the previous version of the lease) for all other Revision types.

Technical Guidance:

Collectibility:

Summary Guidance: Collectibility is relevant only to FASB ASC 842. IFRS 16 does not provide any guidance as it relates to collectibility.

From a Lease Classification perspective, Collectibility is an added classification criteria when determining whether a lease qualifies as a Direct Financing Lease, in addition to the inclusion of the Residual Value Guarantees by third-party.

Collectibility is also relevant in determining proper accounting of the lease transaction as follows:

At Start of Lease:

1. Operating Lease

   1. When Collectibility is Probable - Revenue recognized is based on the calculated straight-line revenue

   2. When Collectibility is not Probable - Revenue recognized based on the lower of cumulative actual cash receipts vs cumulative straight-line revenue

2. Sales-Type Lease

   1. When Collectibility is Probable - Underlying asset is derecognized, and Net Investment in Lease and Selling profit is recognized

   2. When Collectibility is not Probable - Underlying asset is kept in the books, and depreciation is accumulated until collectible. While still not collectible, a deposit liability is recognized for each actual lease payment received.

3. Direct Financing Lease

   1. When Collectibility is Probable - Underlying asset is derecognized, and Net Investment in Lease is recognized. Selling profit is deferred and recognized during the term of the lease.

   2. When Collectibility is not Probable - Not applicable and the lease will be classified as Operating Lease.

When collectibility is updated during the term of the lease:

1. Operating Lease

   1. When Collectibility was Probable and changed to Not Probable - Revenue recognized based on the lower of cumulative actual cash receipts vs cumulative straight-line revenue

   2. When Collectibility was not Probable and changed to Probable - Revenue recognized is based on the calculated straight-line revenue

2. Sales-Type Lease

   1. When Collectibility was Probable and changed to Not Probable - Classification is not updated. Impairment allowance under ASC 310 is performed against the Net Investment in Lease.

   2. When Collectibility was not Probable and changed to Probable- Underlying asset is derecognized, and Net Investment in Lease and Selling profit is recognized

3. Direct Financing Lease

   1. When Collectibility was Probable and changed to Not Probable - Classification is not updated. Impairment allowance under ASC 310 is performed against the Net Investment in Lease.

   2. When Collectibility was not Probable - Not applicable.

Technical Guidance:

Add Variable Expense & Non-Lease Payment Stream (optional for Lessee):

Summary Guidance: This is an optional field which can be used to track Variable Lease Expense and Non-Lease Payments within the software. The reason for including each is discussed below.

Variable Lease Payments: There are three types of variable lease payments, as discussed below. Each is either included as a Lease Payment or a Variable Lease Expense. Payments that were excluded from the Lease Payment section above would be included here as Variable Lease Expense. Variable Lease Expense is a required footnote disclosure. While including this information in the software is optional, it is recommended for ease in populating your footnotes. The three types of variable lease payments are:

1. Payments dependent on an index or a rate initially measured at the Start Date. These payments should NOT be entered here as they are included in the "Lease Payment and Classification" section.

2. Payments dependent on an index or a rate that change after the Start Date

   1. FASB only, each time there is a change in the payment resulting from a change in the reference index or rate, record as a Variable Lease Expense in Variable Expense & Non-Lease Payments tab. See Examples at FASB: 842-10-55-225 through 231.

   2. IFRS only each time there is a change in the payment resulting from a change in the reference index or rate, select Add Revision and enter new payments in Lease Payments & Classification tab.

3. Payments that vary because of changes in circumstances, not related to an index or rate (e.g., payments based on a % of sales). This type of payment would be included as a Variable Lease Expense.

The different types of variable lease payments, and the accounting treatment for each are summarized below.

Non-Lease Payments are any payments that are not deemed Lease Payments or Variable Lease Expenses (unless a policy election is made to combine into a single lease component). They include nonlease components and any other payments that are unrelated to the lease standard. The software allows you to enter Non-Lease Payments that are made at the same time as Lease Payments in order to provide a complete journal entry. Some examples of Non-Lease Payments include:

1. Nonlease components (maintenance services or other activities that transfer a good or service)

   1. Annual Maintenance on ROU Asset

   2. Parking expenses

   3. Common Area Maintenance (CAM)

2. Sales Tax Expense: record as a non-lease period expense. Include as Initial Direct Cost and Tax Liability only if a known amount is obligated at the Start Date of the lease.

3. VAT

Nonlease components includes items such as CAM, unless the lessee makes a policy election to account for nonlease and lease components combined as a single lease component. If this election is made, CAM would be included in the "Lease Payment and Classification" Section and would not be included here.

Technical Guidance:

Add Variable & Non-Lease Receipt Stream (optional for Lessor):

Summary Guidance: This is an optional field which can be used to track Variable Lease and Non-Lease receipts within the software. The reason for including each is discussed below.

Variable Lease Receipts: There are four types of variable lease receipts, as discussed below. Each is either included as a Lease Receipt or a Variable Lease Receipt. Receipts that were excluded from the Lease Receipt section above would be included here as Variable Lease Receipt. Variable Lease Receipt is a required footnote disclosure. While including this information in the software is optional, it is recommended for ease in populating your footnotes. The three types of variable lease payments are:

1. Receipts dependent on an index or a rate initially measured at the Start Date. These receipts should NOT be entered here as they are included in the "Lease Receipts and Classification tab.”

2. Receipts dependent on an index or a rate that change after the Start Date

   1. FASB only, each time there is a change in the receipt resulting from a change in the reference index or rate, record as a Variable Lease Receipt in Variable & Non-Lease Receipts tab. See Examples at FASB: 842-10-55-225 through 231.

   2. IFRS only each time there is a change in the receipt resulting from a change in the reference index or rate, select Add Revision and enter new receipts in Lease Receipts & Classification tab.

3. Receipts that vary because of changes in circumstances, not related to an index or rate (e.g., receipts based on a % of sales). This type of receipt would be included as Variable Lease Revenue.

4. FASB only: Actual amounts received for Residual Value Guarantee by Lessee and/or third-party are recorded as a Variable & Non-Lease Receipt when received, and typically at end of term.

The different types of variable lease payments, and the accounting treatment for each are summarized below.

Non-Lease Receipts are any receipts that are not deemed Lease Receipts or Variable Lease Revenue (unless a policy election is made to combine into a single lease component). They include nonlease components and any other receipts that are unrelated to the lease standard. The software allows you to enter Non-Lease Receipts that are made at the same time as Lease Receipts in order to provide a complete journal entry. Some examples of Non-Lease Payments include:

1. Nonlease components (maintenance services or other activities that transfer a good or service)

   1. Annual Maintenance on ROU Asset

   2. Parking expenses

   3. Common Area Maintenance (CAM)

2. Sales Tax: See below

3. VAT

Nonlease components includes items such as CAM, unless the Lessor makes a policy election to account for nonlease and lease components combined as a single lease component. If this election is made, CAM would be included in the "Lease Receipt and Classification" Section and would not be included in “Variable & Non-Lease Receipts.”

Sales tax or similar taxes (e.g., VAT) from revenue producing activities:

• Lessee is the obligor (most often the case) and Lessor is collecting and remitting to tax authority: record net on the balance sheet (i.e., do not record as variable revenue and expense). Under FASB: 842-10-15-39A, if Lessor is the obligor, Lessor has a policy election to record net on the balance sheet.

Property tax or other taxes assessed on Lessor as owner of the underlying asset: record as variable lease revenue and expense.

Technical Guidance:

Lease Term Guidance Wizard

Lease Term:

Summary Guidance: The Lease Term is the number of months from the Start Date to the End Date.

1. The Start Date is not the date you sign the lease but instead is the Commencement Date of the lease, which is defined as the date on which the lessor makes an underlying asset available for use by a lessee.

2. The End Date is typically the last day of the lease. However, you must consider early termination options and renewal options. If you determine that you will exercise an early termination option because there is not an economic incentive to continue the lease, then use the date of the early termination option as the End Date. If you determine that you will exercise one or more renewal options, because there is an economic incentive to do so, use the last day of the renewal option(s) you are reasonably certain to exercise. A lease is no longer enforceable when both the lessee and lessor have the right to terminate without permission from the other party with no more than an insignificant penalty.

Technical Guidance:

Tool Tip: Lease Term Guidance Wizard: This wizard is meant to help you in 2 ways:

1. Guide you to correctly identify the Lease Term as there involves judgment with regards to early termination options and renewal options.

2. Create an audit trail of your answers for review by you, management or your auditors.

Reasonably Certain:

Summary Guidance: Reasonably Certain is not a guess at what you would most likely do; rather, it is an assessment considering the following economic incentives/factors relevant to that assessment:

1. Contract-based factors

2. Asset-based factors

3. Market-based factors

4. Entity-based factors

An entity’s assessment will often require the consideration of a combination of those factors, as they are interrelated.

Technical Guidance:

Lease Classification Wizard

Classification:

Summary Guidance: There are several Lease Classification depending on whether the party is a Lessee or a Lessor under FASB and IFRS.

For FASB ASC 842, A lease that meets at least one of the criteria below will be classified as a Finance Lease (if a Lessee) or Sales-Type Lease (if a Lessor).
For IFRS 16, A lessee or lessor will likewise classify leases that meet the below criteria as Finance Leases. All other leases will be classified as Operating Leases.

Classification Criteria:
a. Transfers ownership to lessee
b. Option to purchase that lessee is reasonably certain to exercise
c. Lease Term is a major part (e.g., 75%) if its economic life (life of the asset by all users, not just the lessee)
d. Present value of Lease Payments and residual value guarantee by lessee that is substantially all (e.g., 90%) of the fair market value
e. Leased asset has no future use by lessor

Additional Classification Criteria for FASB ASC 842 Lessors:

Additional Classification Criteria for IFRS 16
Classification criteria is not always conclusive. If it is clear from other features that the lease does not transfer substantially all the risks and rewards incidental to ownership of an underlying asset, the lease is classified as an operating lease.

Add Revision: The following Revision types will require you to reassess the classification:

• Modification (amendment of a lease)

• Remeasurement of: a) lease term or b) purchase option

• IFRS 16 ONLY: Change in payments due to payments tied to a floating interest rate (e.g., LIBOR) used to determine those payments

The software will utilize the same Classification (entered in the previous version of the lease) for all other Revision types.

Technical Guidance:

Major Part:

Summary Guidance: Generally, the Lease Term is considered a Major Part of the asset’s economic life if the Lease Term is at least 75% of the asset’s economic life. Technical guidance has removed the bright line of 75%; however, that threshold is still considered a reasonable measurement. You may elect an alternate threshold in your lease accounting policy.

Technical Guidance:

Tool Tip: If you have an underlying asset type (e.g., office lease) in which you cannot determine the true economic life of the underlying asset but the number is so large that the answer is positively "No" to the question, you may want to determine a policy to enter the same large number (1000 months) in order to achieve a “No” answer.

Substantially All:

Summary Guidance: The present value of the Lease Payments is Substantially All of the leased asset’s fair market value. Historically, 90% was used as the threshold to measure "substantially all". Technical guidance has removed this bright line; however, the threshold is still considered a reasonable measure. You may elect an alternative threshold in your lease accounting policy.

Technical Guidance:

Tool Tip: If you have an underlying asset type (e.g., office lease) in which you cannot determine the true fair value of the underlying asset but the number is so large that the answer is positively "No" to the question, you may want to determine a policy to enter the same large number ($1,000,000,000) in order to achieve a “No” answer.

Reasonably Certain:

Summary Guidance: Reasonably Certain is not a guess at what you would most likely do; rather, it is an assessment considering the following economic incentives/factors relevant to that assessment:

1. Contract-based factors

2. Asset-based factors

3. Market-based factors

4. Entity-based factors

An entity’s assessment will often require the consideration of a combination of those factors, as they are interrelated.

Technical Guidance:

Add Revision:

Summary Guidance:  Adding a Revision is how you amend, modify, remeasure or change a lease at or before the end of the lease. By selecting the “Add Revision” button on the top right of the screen in edit mode, the software will freeze the lease and then allow you to change parameters that only affect the lease on/after the date of the Revision.

Below are details to the various FASB and IFRS Revision types:

Partial Termination: Update ROU Asset Value

Summary Guidance:  Because you have selected Partial Termination, you are given the ability to enter a value to over-write the ROU Asset, creating a Gain/Loss to the account selected in the GL Accounts Tab. Follow the steps below:

1. Complete all required fields of this Revision without entering a new ROU Asset Value on the Revision Information Tab

2. Export the Local Currency Amortization Schedule by selecting the lease, including all Revisions.

   1. GL Start Date: Month prior to Start of Revision

   2. GL End Date: Month of Revision

3. The technical guidance offers two ways to calculate the new ROU Asset Value. Fill out the ROU Asset Calculator to determine the ROU Asset Value under either method. Edit the Revision and enter the updated ROU Asset Value at the Revision Information Tab.

Technical Guidance:

ASC 842:
Partial Termination: (FASB: 842-10-25-13, 842-10-55-181 to 185)

IFRS 16:
Partial Termination: (Paragraph 46)