Understanding Recurring Billing for Balance Sheet Lessee Accounting (Release 9.2 Update)

If you are using balance sheet lessee accounting processing, you can set up bill codes and leases so that the assets being leased can be accounted for, and reported on correctly. You can have property and non-property assets on a lease.

When you set up recurring billing information, you enter bill codes for each asset to represent the recurring payments you make for your leased assets. The system brings in the default setup for each bill code when you add it to the lease.

The Effect on Lease Liability field on the bill code impacts how the lease liability amortization schedule for the asset is calculated. Values for this field include:

Guaranteed Residual Value: Payments using bill codes with this value represent the guaranteed residual value (GRV) of the asset when the lease is complete. You must enter these payments in recurring billing to identify the amount you are most likely to pay against the contracted guaranteed residual value (GRV). When you enter a GRV record, the start and end date on the billing record must be the same. GRV amounts are used in calculating the beginning balances of the amortization schedules. The GRV amounts are displayed in the last period of the lease liability schedule.
No: Payments using this bill code have no impact on lease liability.
Yes: Payments using this bill code have an impact on lease liability.

A processing option on the P1502 determines whether users can override this value. If the bill code is set up to have an effect on lease liability or GRV, you must enter an end date for the bill code records. GRV records must use the same date for the start date and the end date. If you do not enter an end date, the system will not generate amortization schedules for the asset. Additionally, if the lease classification for the asset associated with the billing record is defined as Not On Balance Sheet, this field is disabled.

Note:

GRV payments reflect the expected value of a leased asset at the end of a lease. You enter the amount you are most likely to pay against the contracted GRV when you set up the lease to ensure that you are reporting on the maximum liability that you might incur when you return the asset at the end of the lease.

For example, you might lease a car with a GRV of $15,000 USD. This means that at the end of the lease the expected value of the car is $15,000 USD. When the car is returned to the lessor and appraised at the end of the lease, it is determined to be worth $10,000 USD. In this scenario, you would be expected to pay the lessor $5,000 USD.

Because the actual payment amount could differ from the GRV amount, you might choose to suspend this GRV billing line near the end of the lease so that you can complete the appraisal process before the system generates the payment. You can then update the GRV amount with any actual payment amount, and remeasure the lease, if necessary.

Alternatively, you can enter adjusting billing records or journal entries to reflect any differences in the actual payment amount and the GRV amount.

See Changing Lease Terms After Schedule Creation for additional information.

When you enter bill codes for a property asset, you populate the Building/Business Unit and Unit fields. The system then populates the Unit Asset Number field with the value from the Unit Master. When you enter bill codes for a non-property asset, you populate Asset Number fields, and the system automatically populates the Building/Business Unit field and selects the Non-Property Asset option. If you enter a value in the Building/Business Unit field that is different than the responsible business unit on the asset record, the system issues a warning and overrides the value you enter.

Important:

All recurring billing records, across all lease versions, associated with the same asset, and having the Effect on Lease Liability field set to Yes must all have the same values for the following fields to ensure that the amortization schedule is calculated correctly:

Effective Dates
Billing Frequency

If you are using stepped payments, the billing frequency for all payments within a step must follow these rules. However, each step can have a different billing frequency but the dates cannot overlap nor can there be any gaps in dates.
Payment Method

For multicurrency leases the transaction currency used for recurring billing is derived from the lease header. Please see Validating Lessee Accounting Multicurrency Integrity for information on existing multicurrency leases.

If any of the related records have different values in these fields, the system will issue an error, and the records must be updated before they can be saved.

Note that records with the Effect on Lease Liability set to GRV can have different dates and billing frequency. All other fields listed above must be the same.

If your lease contains a date in the Lease Commencement Date field, your recurring billing records must start on or after that date. The lease commencement date cannot be greater than the recurring billing start date.

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

Fixed Stepped Payments for Balance Sheet Lessee Accounting

In some leases, you might enter fixed stepped payments, where the payment amount changes as the lease progresses. For example, the monthly lease amount in year 1 is $10,000 USD, the amount in year 2 is $11,000 USD, and year 3 is $12,000 USD. In these cases, there are multiple records for rent for the lease, each with a different effective date range. The effective dates for these records can not overlap, and there can not be gaps in the dates. In this scenario, you might have these recurring billing records for rent:

Year 1 Rent: $10,000 USD a month, effective from 1/1/2018 through 12/31/2018.
Year 2 Rent: $11,000 USD a month, effective from 1/1/2019 through 12/31/2019.
Year 3 Rent: $12,000 USD a month, effective from 1/1/2020 through 12/31/2020.

Also be aware that if there are additional recurring billing records for the asset, you must set those up using the same schedule as the rent billing records. For example, while the rent amount changes from year to year, you might also have a monthly maintenance fee of $200 that remains fixed over the full term of the lease. Because all records for the asset must have the same effective dates, you would need to set up 3 billing records for the maintenance fee, using the same effective dates as the rent records, as follows:

Year 1 Maintenance Fee: $200 USD a month, effective from 1/1/2018 through 12/31/2018.
Year 2 Maintenance Fee: $200 USD a month, effective from 1/1/2019 through 12/31/2019.
Year 3 Maintenance Fee: $200 USD a month, effective from 1/1/2020 through 12/31/2020.

Additionally, all payments within a step must have the same billing frequency. However, you can have different billing frequencies for different steps. For example, you might pay monthly during year 1, but pay quarterly during year 2 and 3. In this scenario, all billing records for year 1 must use a monthly billing frequency. All billing records for year 2 and year 3 must use a quarterly billing frequency.

These rules also apply to lease records across lease versions. For example, if you are using versioning to track the changes to a lease, the records for each version must meet the rules for the stepped payments, as described above.

Revising Recurring Billing Records After Lease Commencement

In some cases, the terms of a lease change after the lease commences. These changes could include changes to the payment amounts or the dates, making it necessary to update recurring billing records.

If amortization schedules already exist for a billing record, the system displays a green icon in the Schedules Exist field on the Recurring Billing Revisions form. If you make changes to these records, you might be required to remeasure the lease.

Additionally, you can use the global update to change records on a lease that has already commenced. If your global update selection criteria selects only certain records on the lease for update, the system will change all records necessary to ensure that the rules of stepped payments are still met. Additionally, these changes might also require you to run a remeasurement of the lease.

See these topics for additional information and instructions:

Lease Versions and Recurring Billing

If you create a new lease version after lease commencement, you might also need to create new recurring billing records for the new version. When you create new lines for your new version, you must ensure that all of the billing records for each version comply with the rules for stepped payments, described above.

You can use the Version row menu option on the Recurring Billing Revisions form to automatically suspend the billing lines for the old version and create new billing lines for the new version. The system updates the dates, suspend codes, and effect on lease liability as needed to ensure that both your billing and your amortization schedules are accurate. If the changes you make to your new billing lines impact the lease liability calculations, the system will update the lease to indicate that a remeasurement is required.

If you manually update the recurring billing records when creating a new version, you must update the Suspend Code and Suspend Date fields in conjunction with the Effect on Lease Liability field, and also adhere to the stepped payment rules, to ensure that your billing and amortization schedules accurately reflect your changes.

See these topics for additional information and instructions:

Suspending Recurring Billing Lines for Lessee Accounting

If you suspend a recurring billing line that has an effect on lease liability, the system does not update the amortization schedules to reflect that the line is no longer being processed. If you want the change in billing to be reflected in the amortization schedules, you must use the change lease terms feature and then remeasure the lease as needed.

It is the Effect on Lease Liability field that drives the amounts in the amortization schedule, which is why suspending a line does not impact the schedules. It only impacts the billing/payments.

See Changing Lease Terms After Schedule Creation for additional information about remeasuring a lease.