Before you Begin

This tutorial shows you how to plan for Capital lease assets with IFRS16 Standard support enabled, as well as import existing leased assets. The following use cases are included:

• Ownership with Lessor and Lease Term is less than Useful Life
• Ownership with Lessor and Lease Term is greater than Useful Life
• Ownership with Lessee
• Low Tenure Leases
• Low Value Leases
• Lease with Indexation
• Rent Free Lease

The sections build on each other and should be completed sequentially.

Background

With Capital, you can manage, prioritize, and plan for capital expenses. Capital helps decision-makers and front-line managers communicate throughout the request, justification, review, and approval process.

In Capital, you can perform lease asset planning with IFRS-16-enabled applications.

The following IFRS16 Standard calculations are supported:

• New and existing lease assets
• Asset and liability values based on NPV of Lease
• Depreciation of the assets
• Low value and low tenure assets that are exempt from being capitalized
• Treatment considerations based on ownership of the Lease
• Indexation of the lease cost
• Lease calculations for Plan and Forecast scenarios

Review how lease asset calculations impact Profit & Loss, Balance Sheet and Cash flow in the Analysis card under Capital.

In this tutorial, you plan for lease assets with IFRS16 enabled for the following use cases:

• Ownership with Lessor and Lease Term is less than Useful Life
• Ownership with Lessor and Lease Term is greater than Useful Life
• Ownership with Lessee
• Low Tenure Leases
• Low Value Leases
• Lease with Indexation
• Rent Free Lease

What Do You Need?

An EPM Cloud Service instance allows you to deploy and use one of the supported business processes. To deploy another business process, you must request another EPM Enterprise Cloud Service instance or remove the current business process.

• Have Service Administrator access to an EPM Enterprise Cloud Service instance. The instance should not have a business process created.
• Upload and import this snapshot into your instance.
• Download this data file (Existing Leases.csv) to a local folder.

Note:

If you run into migration errors importing the snapshot, re-run the migration excluding the HSS-Shared Services component, as well as the Security and User Preferences artifacts in the Core component. For more information on uploading and importing snapshots, refer to the Administering Migration for Oracle Enterprise Performance Management Cloud documentation.

Enabling IFRS16 Support

In this section, you enable the IFRS16 feature for Capital.

1. On the home page, click Application, and then Configure.

   

2. From the Configure dropdown, select Capital.

   

   
   

   The Configure page for Capital is displayed. In this application, Capital was configured with a few features enabled. Components related to those enabled features are listed on this page.

   

3. Click Enable Features.
4. In Enable Features, under New Capital Investment, select IFRS16 Standard.

   

5. Scroll down and review all previously enabled features, including the selected custom dimensions.
6. Click Enable.
7. At the confirmation message, click Yes.

   

   
   

   The enablement process takes a moment to complete.

   

8. At the information message, click OK.

   

9. Sign out and sign back into Planning.

Adding Capital Lease Assets

You can add assets using provided members or create your own asset class. In this section, you add the provided member: Capital Leased Assets.

Adding Provided Members

1. On the home page, click Application, and then Configure.

   

2. From the Configure dropdown, select Capital.

   

3. From the list of components, click Assets.

   

4. In Assets, click Actions, and then select Add.

   

5. Then, select Provided Members.

   

   
   
6. In Provided Members, locate and select Capital Leased Assets and click OK.

   

   
   

   The added provided member is listed in the dialog.

   

7. Click Save.
8. At the information message, click OK.

   

9. Click Close.

Refreshing the Database

1. On the Configure page for Capital, click Actions, and then select Refresh Database.

   

2. In Refresh Database, click Create.

   

3. In the next Refresh Database dialog, accept default selections and click Refresh Database.

   

4. At the Refresh Database confirmation message, click Refresh.

   

   
   

   The cube refresh process takes a moment to complete.

   

5. When the status displays Succeeded, click Finish.

   

6. Click Close, twice, to close both Refresh Database dialogs.

Setting the Current Fiscal Year

In this section, you review the Planning and Forecast Preparation selections and set the current fiscal year.

1. On the Configure page for Capital, click Planning and Forecast Preparation.

   

2. For Current Fiscal Year, select FY22.

   

3. Review the selected Period, Plan Start Year, and planning frequency for the Plan scenario.

   

4. Click Forecast and review the planning frequency selections.

   

5. Click Save.
6. At the Validation message, click OK.

   

7. Click Close.

Setting Application Preferences

You can control many aspects of the application and the system. In this section, you set currency precision, assign values to user variables, and set display preferences.

Setting Currency Precision

1. From the cards on top, click Overview.

   

2. Click Dimensions.

   

3. From the Cube dropdown, select OEP_CPX.

   

4. From the list of dimensions, click Currency.

   

5. In the grid of Edit Member Properties for Currency, under Currency, expand Input Currencies.

   

   
   

   USD is listed as an input currency.

   

6. For USD, scroll to the right, locate the Precision column, and set it to 0.

   

7. Click Save.
8. Click Cancel.

Assigning Values to User Variables

1. Click (Navigator), then under Tools, click User Preferences.

   

2. On the left, click User Variables.

   

3. For Entity, click its (Member Selector) and select Manufacturing US as the variable's value.

   Tip:

   You can directly type the member name, instead of using Member Selector.
4. For Years, click its (Member Selector) and select FY22. as the variable's value.
5. Click Save.
6. At the information message, click OK.

   

Setting Display Preferences

1. On the left, click Display.

   

2. Under Number Formatting, set Thousands Separator to Comma.

   

3. Click Save.
4. At the information message, click OK.

Setting Assumptions

You set assumptions that drive calculations used in the built-in best practice and formulas.

1. Click (Navigator), then under Capital, click Investments.

   

2. From the vertical tabs on the left, click (Assumptions).

   

   
   

   Depreciation & Amortization Assumptions is displayed.

   

3. In the POV, verify that Entity is set to Company Assumptions.
4. In the grid, for Capital Leased Assets, set the following values:

   Detail	Value
   Useful Life (in Years)	6
   Depreciation Method	Straight Line
   Depreciation Convention	Prorate Actual Date
   Low Value Lease Term (in Months)	12
   Low Value Lease Amount	5000

5. Verify your selections and click Save.

   

6. At the bottom, click Funding Assumptions.
7. In Funding Assumptions, for Capital Leased Assets, enter the following:

   Column	Value
   Cash Flow Incidence	Same Month
   Funding Incidence	Same Month

8. Verify your selections and click Save.

Use Case: Ownership with Lessor and Lease Term is less than Useful Life

In this use case, you add a capitalized lease asset with the following details:

• Lease is owned by Lessor.
• The lease term is shorter than its useful life.

1. From the vertical tabs on the left, click (Lease Asset Planning).

   

2. In the POV:
   • Verify that Entity is set to Manufacturing US.
   • Set the Asset Class to Capital Leased Assets.
   • Verify that Project is set to No Project.
   • Click (Go).

   

3. In New Leased Assets, within the whitespace, right-click and select Add New Leased Asset.

   

4. In Add Leased Asset, enter the following:

   Detail	Value
   ID	LeaseAsset001
   Description	Lease Owned by Lessor
   Asset Units	1
   Capacity UOM	Each
   Priority	High
   Lease Date	1/1/2022
   Lease Term (In Years)	4
   Lease Payment	40000
   Payment Frequency	Annual
   Payment Timing	End of Period
   Implicit Interest Rate	5
   Index Rate	1
   Index Rate Basis	Annual
   Ownership After Lease Term	Lessor
   Low Value Override	No
   Asset Name	"LeaseAsset001"

5. Verify your selections and click Launch.

   

6. At the information message, click OK.

   

   
   

   The new lease asset is displayed on the grid.

   

7. In the grid, right-click LeaseAsset001 and select Calculate Lease.

   

8. At the information message, click OK.

   

   
   

   The charts on the dashboard are updated to display impacts on Profit and Loss, and Cash Flow.

   The asset value is calculated from the Net Present Value of the asset. The Present Value becomes the Gross PP&E and Liability (right-of-use, or ROU, asset and liability). This is calculated based on the interest rate of 5%, lease payment, and the lease term of four (4) years.

   Depreciation is calculated for (four) 4 years, as based on whichever is lower between the lease term or useful life since asset ownership is with the Lessor.

   IFRS 16 also refers to the lease asset as an ROU asset. These leases are capitalized and presented on the balance sheet as both assets and liabilities, unless subject to any of the exemptions prescribed by the standard.

   

9. From the cards on top, click Analysis.

   

10. From the vertical tabs on the left, click (Financial Statements).

    

11. Review the contents of the Balance Sheet. Expand periods (Year Total) to drill-through values.

    

12. From the horizonal tabs at the bottom, click Cash Flow Impacts and review the impact of lease payments to the cash flow.

    

13. From the horizontal tabs at the bottom, click Profit and Loss Impacts and review depreciation and interest expenses.

    

Use Case: Ownership with Lessor and Lease Term is Greater than Useful Life

In this use case, you set the lease term to eight (8) years so that the lease term becomes greater than the useful life.

1. From the cards on top, click Investments.

   

2. Verify that you are on Lease Asset Planning.
3. In the POV, verify or set:
   • Entity: Manufacturing US.
   • Asset Class: Capital Leased Assets.
   • Project: No Project.
   • Click (Go).
4. In the grid, for LeaseAsset001, set Lease Term (in Years) to 8.

   

5. On the upper right of the form, click (Save).
6. At the information message, click OK.
7. In the grid, right-click LeaseAsset001 and select Calculate Lease.

   

8. At the information message, click OK.
   

   The charts on the dashboard are updated to display impacts on Profit and Loss, and Cash Flow.

   The asset value is calculated from the Net Present Value of the asset over the term of eight (8) years.

   Depreciation is calculated for (six) 6 years, as based on whichever is lower between the lease term or useful life since asset ownership is with the Lessor.

   With the lease asset capitalized, the Present Value is taken from the combination of the Gross PP&E and Liability (right-of-use, or ROU, asset and liability) and Asset Class value.

   

9. Optionally review the impact on Financial Statements in the Analysis card. When finished reviewing, return to Lease Asset Planning.

Use Case: Ownership with Lessee

In this use case, you set the ownership of the lease to the lessee.

1. In the POV for Lease Asset Planning, verify or set:
   • Entity: Manufacturing US.
   • Asset Class: Capital Leased Assets.
   • Project: No Project.
   • Click (Go).
2. In the grid, for LeaseAsset001, set:
   • Lease Term (In Years) to 4
   • Ownership After Lease Term to Lessee

     

3. On the upper right of the form, click (Save).
4. At the information message, click OK.
5. In the grid, right-click LeaseAsset001 and select Calculate Lease.

   

6. At the information message, click OK.
   

   The Present Value is again calculated based on the interest rate of 5%, lease payment, and the lease term of four (4) years.

   Depreciation is calculated for (six) 6 years, based on the useful life since asset ownership is transferred to the Lessee at the end of the term.

   

7. Optionally review the impact on Financial Statements in the Analysis card. When finished reviewing, return to Lease Asset Planning.

Use Case: Low Tenure Leases

Low tenure lease thresholds are based on the values you entered in Depreciation & Amortization Assumptions for Low Value Lease Term (in Months).

In this use case, you plan for the following exception: If the lease term is less than or equal to the specified Low Value Lease Term (in Months) assumption, the lease is charged off on the P&L rather than being treated like other assets.

1. In the POV for Lease Asset Planning, verify or set:
   • Entity: Manufacturing US.
   • Asset Class: Capital Leased Assets.
   • Project: No Project.
   • Click (Go).
2. In the grid, for LeaseAsset001, set:
   • Lease Term (In Years) to 1

     This sets the tenure to 1 year, which is equal to the Low Value Lease Term (in Months) assumption you defined: 12.

   • Ownership After Lease Term to Lessor

     

3. On the upper right of the form, click (Save).
4. At the information message, click OK.
5. In the grid, right-click LeaseAsset001 and select Calculate Lease.

   

6. At the information message, click OK.

   The charts on the dashboard are updated to display impacts on Profit and Loss, and Cash Flow.

   Notice that because the lease term is equal to the Low Value Lease Term (in Months) assumption, the lease is charged off the P&L.

   

7. Optionally review the impact on Financial Statements in the Analysis card. When finished reviewing, return to Lease Asset Planning.

Use Case: Low Value Leases

Lease assets that meet the low value threshold you set for the Low Value Lease Amount assumption are calculated using the IFRS16 standard for low value assets, and are charged off on the P&L rather than being treated like other assets.

In this use case, you add a low value lease asset.

1. In the POV for Lease Asset Planning, verify or set:
   • Entity: Manufacturing US.
   • Asset Class: Capital Leased Assets.
   • Project: No Project.
   • Click (Go).
2. In the grid, for LeaseAsset001, set:
   • Lease Term (In Years) to 4
   • Lease Payment to 5000

     

     

     Tip:

     You may need to scroll to the right of the form to locate Lease Payment.
3. On the upper right of the form, click (Save).
4. At the information message, click OK.
5. In the grid, right-click LeaseAsset001 and select Calculate Lease.

   

6. At the information message, click OK.

   The charts on the dashboard are updated to display impacts on Profit and Loss, and Cash Flow.

   Similar to low tenure leases, low value leases are charged off the P&L. In this example, the P&L charge for this lease occurs within the four (4) year lease term.

   

7. Optionally review the impact on Financial Statements in the Analysis card. When finished reviewing, return to Lease Asset Planning.

Use Case: Lease with Indexation

In this use case, you adjust the annual index rate of a lease asset. If you set an Index Rate, lease amounts increase for inflation based on the Index Rate Basis (annual or according to the payment frequency, depending on what you selected). In the previous use cases, an index rate of 1% was used.

1. In the POV for Lease Asset Planning, verify or set:
   • Entity: Manufacturing US.
   • Asset Class: Capital Leased Assets.
   • Project: No Project.
   • Click (Go).
2. In the grid, for LeaseAsset001, set:
   • Index Rate to 3%
   • Lease Payment to 40000

     

     Many companies structure lease contracts with an annual index (inflation) rate rather than according to the payment frequency (for example, monthly). This feature enables you to have an annual index rate increase that is not tied to the payment frequency.

3. On the upper right of the form, click (Save).
4. At the information message, click OK.
5. In the grid, right-click LeaseAsset001 and select Calculate Lease.

   

6. At the information message, click OK.

   The charts on the dashboard are updated to display impacts on Profit and Loss, and Cash Flow.

   For leased assets with an Index Rate, Calculate Leased Assets calculates PV of leased assets for all assets whose lease start date is prior to the planning and forecast year range.

   

7. Optionally review the impact on Financial Statements in the Analysis card. When finished reviewing, return to Lease Asset Planning.

Use Case: Lease with Rent Free Periods

Rent free periods are based on periods, not a date range, based on the payment frequency for the lease (monthly, quarterly, yearly).

In this use case, you add a leased asset with rent free periods.

1. In the POV for Lease Asset Planning, verify or set:
   • Entity: Manufacturing US.
   • Asset Class: Capital Leased Assets.
   • Project: No Project.
   • Click (Go).
2. In New Leased Assets, within the whitespace, right-click and select Add New Leased Asset.

   

3. In Add Leased Asset, enter the following:

   Detail	Value
   ID	RentFree
   Description	Rent Free Lease
   Asset Units	1
   Capacity UOM	Each
   Priority	High
   Lease Date	1/1/2022
   Lease Term (In Years)	4
   Lease Payment	50,000
   Payment Frequency	Monthly
   Payment Timing	End of Period
   Implicit Interest Rate	5
   Index Rate	2
   Index Rate Basis	Annual
   Ownership After Lease Term	Lessor
   Low Value Override	No
   Asset Name	"RentFree"

4. Verify your selections and click Launch.

   

5. At the information message, click OK.

   

   
   

   The new lease asset is displayed on the grid.

   

6. In the grid, right-click RentFree and select Calculate Lease.

   

7. At the information message, click OK.

   

   
   

   The charts on the dashboard are updated to display impacts on Profit and Loss, and Cash Flow.

   

   
   

   After you add new lease assets, on the Rent Free Periods form, for each lease asset, select Yes for any periods that should be rent free.

8. At the bottom, click the Rent Free Period horizontal tab.
9. In Rent Free Periods, for RentFree, verify that the Payment Frequency is set to Monthly.

   

10. For RentFree, set Jan to Yes, then select or copy the same value through May.

    

    
    

    Define rent free periods that can occur any time during the term of the lease.

    When companies negotiate long term lease contracts, they might want to offer rent free periods during the term of the lease contract as an incentive. This is also popularly known as Lease Holiday, where certain periods are given as incentive as per the lease terms.

11. Click Save.
12. At the information message, click OK.

    

13. At the bottom, click the Lease Asset Planning horizontal tab.
14. For RentFree, review the PV of Lease value.

    

15. In the grid, right-click RentFree and select Calculate Lease.

    

16. At the information message, click OK.

    

    
    

    The charts on the dashboard are updated to display impacts on Profit and Loss, and Cash Flow.

    

    
    

    After adding rent free periods and calculating the lease, the Present Value of the lease is lower. Rent free period lease payments are set to zero, and when you calculate the lease, values for present value and cash flow are calculated considering rent free periods.

17. Optionally review the impact on Financial Statements in the Analysis card.
18. On the upper-right of the page, click (Home).

Importing and Calculating Lease Assets

In this section, you import existing lease assets.

Adding Existing Lease Members to the Hierarchy

1. From the home page, click Application, and then Overview.

   

2. Click Dimensions.

   

3. From the Cube dropdown, select OEP_CPX.

   

4. Click Asset Detail.

   

5. In the grid of Edit Member Properties for Asset Detail, under Asset Detail, expand OCX_Total All, then OCX_Leased Assets.
6. Select OCX_Existing Lease.
7. Click (Add Child).

   

8. In Add Child, set the number of members to add to 2, and then click Apply.

   

   
   

   Two untitled members rows are added under OCX_Existing Lease.

   

9. Replace the names of the untitled members with the following names:
   • Lease002
   • Lease003
10. For both members, set the Default Data Storage to Store.

    

11. Set the Default Alias Table entries to match the member names.

    

12. Click Save.
13. Click (Refresh Database).
14. In the first Refresh Database dialog, accept all default selections and click Refresh Database.

    

15. At the Refresh Database prompt, click Refresh.

    

    
    

    Refreshing the database takes a moment to complete.

    

16. When the cube refresh progress completes, click Finish.

    

17. In Refresh Database, click Close.
18. In Edit Member Properties for Asset Detail, click Cancel.

Importing Existing Lease Asset Data

1. In Dimensions, click Actions, then select Import Data.

   

2. In the first Import Data dialog, click Create.
3. In the next Import Data dialog, for Source File, click Choose File.

   Note:

   Depending on your browser, the button label may display Choose File or Browse.

   

4. Navigate to where you saved Existing Leases.csv, then select or open it.

   Once selected, it displays as:

   

5. At the top of the dialog, click Import.

   Tip:

   Oracle recommends validating your import file before running the import process. The import file included in this tutorial has been tested and validated.
6. At the information message, click OK.

   

7. Click Close, twice to close both Import Data dialogs.
8. From the cards at the top, click Jobs.

   

9. In Jobs, locate the following jobs and verify that they completed successfully:

   

Reviewing the Imported Existing Assets

1. Click (Navigator), then under Capital, click Existing Assets.

   

2. From the vertical tabs on the left, click (Existing Leased Assets).
3. In the POV for Existing Leased Assets, verify or set:
   • Entity: Manufacturing US.
   • Asset Class: Capital Leased Assets.
   • Project: No Project.
   • Click (Go).
4. In the grid, verify that the imported lease assets, Lease002 and Lease003 are displayed.

   

5. Locate the Index Rate column and, for both lease assets, set it to 1%.

   

6. On the upper right of the form, click (Save).
7. At the information message, click OK.
8. Right-click Existing Lease and select Calculate All.

   

9. At the information message, click OK.
   

   The charts on the dashboard are updated to display impacts on Profit and Loss, and Cash Flow.

   Notice that the calculations are the same for both assets. The assets, however, differ in the number of years they depreciate.

   Tip:

   Modify the Lease Date, save the data on the form, and calculate the lease to see how the changes impact P&L, as well as Cash Flow.

   

10. Optionally review the impact on Financial Statements in the Analysis card.

Learn More

• Related videos and documentation

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Title and Copyright Information

Lease Asset Planning with IFRS16

F52579-02

April 2022

Copyright © 2022, Oracle and/or its affiliates. 

This tutorial shows you how to plan for Capital lease assets with IFRS16 Standard support enabled, as well as import existing leased assets. The following use cases are included: Ownership with Lessor and Lease Term is less than Useful Life, Ownership with Lessor and Lease Term is greater than Useful Life, Ownership with Lessee, Low Tenure Leases, Low Value Leases, Lease with Indexation, and Rent Free Lease.

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