Lease Modifications

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 Asset Lifecycle Management Fundamentals: 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.