Overview of Asset Leases

Many organizations lease assets such as real estate, airplanes, trucks, ships, and construction and manufacturing equipment. Leasing assets allows an organization to gain access to assets, while reducing the organization's exposure to the risks of asset ownership.

Create asset leases to comply with the IFRS 16 Leases and FASB Leases (Topic 842) accounting standards.

Use Oracle Assets to:

• Create asset leases and calculate the lease liability and cost to be capitalized.

• Add leased assets to your asset book.

• Calculate periodic depreciation expense and interest expense on the lease liability for finance lease assets.

• Calculate periodic lease expense for operating lease assets.

• Generate periodic lease payment invoices with the correct distribution account.

• Schedule the transfer of lease payment invoices to Oracle Payables.

• Change the lease term and payment schedules, and capitalize the changes to your lease liability.

• Terminate the lease at the end of the lease term or earlier.

• Report and inquire on leased assets.

Use Payables to:

• Validate, approve, and account lease invoices transferred from Assets.

• Pay lease invoices on the due date.

Lease Classifications

Leases are classified as either finance leases or operating leases. A lease is automatically classified as a finance lease if any one of the following options is enabled:

Field	Value	Description
Exercise Options	Purchase	Lessee plans to buy the leased asset at the end of lease term.
Major lease term check box	Enabled	Lease term is 75 percent or more of the remaining economic life of the leased asset.
Substantial present value check box	Enabled	Present value of the lease payments is 90 percent or more of the fair value of the leased asset.
Ownership transfer check box	Enabled	Ownership of the leased asset is transferred to the lessee at the end of the lease term.
Specialized asset check box	Enabled	Leased asset has no alternative use to the lessor at the end of the lease term.

If none of these options are enabled, the lease is an operating lease.

Lease Payment Schedules

Depending on how your leases are set up, lease payment schedules are either lease level or asset level payment schedules.

Payment Schedule Type	Description
Lease-Level Payment Schedule	Many assets are leased through a single lease contract with one lease payment schedule for all assets included in that lease. The lease term, lease payment amount, and interest rate are the same for all assets and there are no asset-specific terms in the contract. For this type of lease, you can either add a single asset or you can add each leased asset as a separate asset in the asset book. Lease payments are either recurring or one time. If your lease includes multiple assets, Assets automatically divides the lease-level schedule that you entered into many asset-level schedules based on the number of assets that you specify. Any changes that you make to the lease-level schedule are automatically propagated to all asset-level schedules. Note: You can update an asset-level schedule when the lease payment amount changes for a particular asset. However, any changes you make directly to the asset schedule or any additional asset schedules that were added directly in the Assets tab will make the lease-level schedule inactive, and will hide the Recurring Payments and Onetime Payments tabs.
Asset-Level Payment Schedule	Your lease can have many different assets that are leased through a single lease contract for a specific period, with each asset having its own lease payment schedule. In this case, the lease payment amount and interest rate may be different for each asset. For this type for lease, you can't have any lease-level schedules, and you can enter only a separate payment schedule for each asset in the Assets tab.

Payment schedules include the following:

• Payment Type: The type of payment used depends on the frequency of the lease payments. Lease contracts normally use both recurring and one-time lease payments.

  Payment Type Name	Description	Payment Types
  Recurring Payments	The amount payable on a specific date at a specific frequency for the entire lease term or part of the lease term. The generated amortization schedule shows all of the recurring payments to be made during the lease term.	The recurring payment types are: Periodic lease payment Variable lease payment Other payments
  One-time Payments	The amount payable at a specific date during the lease term.	The one-time payment types are: Initial direct cost Advance lease payment Purchase price Residual value Termination penalty

• Payment Date: The date when the payment needs to be made to the lessor.

• Interest Due Date: The date when interest on a lease liability is recognized. For a finance lease, interest on a lease liability is recognized in the period in which the interest due date falls. For operating leases, the operating lease expense is recognized in the period in which the interest due date of the periodic lease payment falls. For example, if the lease payment is made on 1 January of every year and the interest on lease liability is calculated 31 December of every year. You must enter an interest due date if you don't enable the Exclude from Liability option.

• Amount: Amount payable to the lessor.

• Number of Payments: For periodic lease payments, the number of payments is automatically calculated using the lease term, lease payment frequency, and lease payment option.

• Interest Rate: Enter only for the payment type Periodic Lease Payment. Only one interest rate is allowed for all payments. You can't have different rate for each payment type.

• Exclude from Liability: Indicates whether the lease payment is included in the lease liability calculation.

• Exclude from Cost: Indicates whether the lease payment is included in the leased asset cost calculation.