1. Real Estate Management Implementation Guide
  2. Understanding Lessee Lease Entry for Balance Sheet Accounting (Release 9.2)

Understanding Lessee Lease Entry for Balance Sheet Accounting (Release 9.2)

You can also create leases for property and non-property assets that you are leasing (as a lessee), and use the Real Estate Management system to create the necessary amortization schedules and journal entries to account for your leased assets on the balance sheet.

The Lease Information program (P1501) includes a Lessee Accounting tab, which contains the fields you need to complete for a lessee lease. On this tab, you must select the Lessee option to enable the fields for editing. You use the following fields to determine how the system handles the accounting for your lease:

  • Lessee

    Select this option to specify that this is a lessee lease. Once you select this option, the system enables the fields associated with a lessee lease. Additionally, this field is disabled after the Lease Liability Status value is 10 or greater.

  • Default Lease Classification

    Specify the lease classification that is used as the default on all lines on the lease. The value is retrieved from the Real Estate Management Constants, and can be overridden if the Lessee option is selected. You can also override the value on the detail lines if necessary.

  • Borrowing Rate

    If the Lessee option is selected, this field is enabled and required. You must have a borrowing rate if you want to create amortization schedules for the lease.

    For a lessee, this is the discount rate for the lease. Use the rate implicit in the lease unless that rate cannot be readily determined. In that case, the lessee is required to use its incremental borrowing rate. You can also override the value on the detail lines if necessary.

  • Reasonably Certain to Exercise Option

    This field is informational only, and does not impact any accounting processing for the lease.

You can then enter lines on the lease for each asset that you are leasing. Each leased asset must have an asset number. If you are entering a property asset, you enter a unit number, and the system retrieves the associated asset number from the asset record and populates the Unit Asset Number field to identify the asset. You can use the visual assist on the Unit field to search for and select valid property assets.

If you are entering a non-property asset, you use the Asset Number field, which comes from the Asset Master record. You can use the visual assist to search for and select non-property assets. Alternatively, you can use the Create Non-Property Asset icon to create non-property asset records directly from the lease. These assets are used to generate amortization schedules and journal entries to properly account for leased assets that must be shown on the balance sheet.

When you use the Create Non-Property Assets icon to create assets, the system uses default information from the processing options from the Assets tab of the P1501. You can override this information during asset creation. These processing options also control whether this icon is available.

When you enter non-property assets on a lease, the system disables certain row menu options that are specific to property assets, such as the Unit Revisions, Unit History, and Unit Area Adj options. Additionally, fields on the detail line that are unit-specific are also disabled.

If you are entering multiple assets on a lease, you can click the Save and Continue button on the lease so that you can save your changes as you go.

After you create the lease, you can then enter manual and recurring billing information. If your lease commencement and the recurring billing start dates are the same, you can leave the Lease Commencement Date for each asset on the lease blank. The system then uses the recurring billing start date as the lease commencement date. However, if the dates are different, you can enter a date in the Lease Commencement Date field on the lease. The system then uses this date, rather than the recurring billing start date, as the commencement date. Note that the lease commencement start date cannot be greater than the recurring billing start date.

Additionally, if the recurring billing end date and the date on which you relinquish control of the leased asset are the same, you can leave the ROUA End Date field blank for the assets. The system uses the recurring billing end date as the ending date of the asset. However, if the date you relinquish control of the asset is greater than the recurring billing end date for the asset, you can enter a date in the ROUA End Date on the lease. The system then uses this date as the ending date for the asset. The ROUA End Date cannot be less than the recurring billing end date.

You can then run the lease commencement process, which creates amortization schedules and generates the appropriate journal entries for your lease. As the lease moves through the lessee accounting process, the system updates the Lease Liability Status field on the lease, which determines which actions can be completed, and which fields on the lease can be updated.

If you enter into a sublease for a leased asset, you can enter a sublease date on the lease line. If there is a date in the Sublease Date field, the lease is a lessee lease, and the lease classification is an operating or finance lease, you can then specify whether the sublease has an impact on ROUA by selecting the Impact on ROUA option. If you select this option, when you run the Lessee Accounting Journal Entries program (R15180), the system creates a credit entry using the LR AAI and a debit entry using the L6 AAI for the remaining balance on the Right of Use Asset Amortization schedule for that month. You will in effect clear your right to use the asset, but retain the lease liability for the leased asset. If you do not select this option, the R15180 does not change the balance sheet lessee accounting journal entries for the sublease.

For additional information about lessee accounting, see Balance Sheet Lessee Accounting (Release 9.2 Update).