Understanding Accounting for Foreign Currency Leases

Lease Administration supports foreign currency leases. A foreign currency lease is a lease with a currency code on the financial terms page that is different from the currency code for the Lease Administration business unit. Foreign currency lease transactions capture two amounts:

  • Transactional Currency Amount, denominated in the lease currency.

  • Base Currency Amount, which is calculated by applying a currency exchange rate to the transactional currency amount for a specified date.

The following sections describe the unique accounting requirements for foreign currency leases.

For details about foreign currency accounting, see the Accounting for Foreign Currency Payable Leases in PeopleSoft white paper on My Oracle Support (support.oracle.com).

Important! The foreign currency lease accounting guidance provided in this documentation is based on Oracle-PeopleSoft’s interpretation of accounting guidance and assumptions in how accounts are typically used by an organization. Please review account revaluation accounting policies with your internal accounting department.

The Transaction Currency Translation option on the Installation Options - Asset Management Page controls how the Create Accounting Entries and Depreciation Close processes manage foreign transaction currency amounts.

If you select the option, the transaction currency detail is not retained. Consequently, accounts such as the lease obligation account cannot be revalued in PeopleSoft General Ledger because the currency transaction amounts are not being tracked.

If you do not select the option, the transaction amount, currency code, and exchange rate are retained, permitting accounts such as the lease obligation account to be revalued in PeopleSoft General Ledger.

Currency realized gain and loss accounting entries are created at the time of lease payment for both operating leases and finance leases. These entries are stored in the Asset Management Accounting Line Distribution (DIST_LN) table and sent to PeopleSoft General Ledger for posting.

Rent expense for operating leases is bifurcated into two components:

  • Amortization of Right-of-Use Asset: Uses a fixed rate associated with the amortization of the right-of-use asset.

    The accounts associated with this component should not be revalued in PeopleSoft General Ledger.

  • Interest: Calculates interest for right-of-use assets and uses a conversion rate at month end.

    The accounts associated with this component should be revalued in PeopleSoft General Ledger.

Straight-line adjustments provide an equal pattern of expense recognition over the life of the lease when lease payment amounts change over time and use the currency conversion rate associated with amortization of the right-of-use asset.

Lease modifications can impact the accounting for both operating and finance leases as follows.

Asset Cost and Foreign Currency Realized Gain and Loss

An asset has one exchange rate at any given time. The rate starts as the rate in effect at lease commencement. The lease commencement rate is used in monthly accounting of rent expense and depreciation to reduce the cost of the asset until an amendment is processed. At the time of lease amendment, the exchange rate associated with the asset is updated to reflect the new exchange rate in effect at the time of the amendment. The new exchange rate is reflected in the monthly reductions to the cost of the asset through rent expense and depreciation.

Existing functionality provides options to identify whether a modification impacts only a newly added asset or existing assets too. For those assets impacted by the amendment, the system creates a cost adjustment in the Asset Management COST table to reflect any new or changed payments using the currency exchange rate in effect at the time of lease amendment.

In addition, if the impacted asset was already in existence at the time of amendment, the system creates a cost adjustment to revalue the net book value of the asset to reflect the currency exchange rate at the time of the lease amendment with an offset to foreign currency gain and loss.

Note: Currency exchange gains and losses are identified with a separate cost type. Use the Currency Exchange Gain/Loss option on the Cost Types Page to set up a currency exchange cost type.

Lease Obligation

Adjustments to the lease obligation resulting from lease amendments use the exchange rate at the commencement date of the lease. The revaluation of the lease obligation account in base currency should be performed in General Ledger using existing revaluation functionality.

Lease interest accruals are recorded when payments are made less frequently than monthly (for example, quarterly or annually) and are measured using the rate at month end. This applies to financial terms calculated in advance and arrears. Based on Oracle-PeopleSoft's interpretation of the accounting guidance, the lease interest accrual account may be revalued in PeopleSoft General Ledger.

ChartField transfers, recategorizations, and retirement transactions retain lease obligation amounts in the transaction currency of the lease. This facilitates the revaluation of the lease obligation account balance from transaction currency to base currency in general ledger at month-end.

Unrealized gains and losses on accounts such as the lease obligation account, that result from the passage of time are calculated using existing revaluation functionality in PeopleSoft General Ledger.

PeopleSoft provides the query, RE_UNREALIZED_GL, which details the unrealized currency gains and loss by leased asset.