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.
    Navigate to the Configure page
  2. From the Configure dropdown, select Capital.
    Go to 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.

    Configure page for Capital
  3. Click Enable Features.
  4. In Enable Features, under New Capital Investment, select IFRS16 Standard.
    Enable features
  5. Scroll down and review all previously enabled features, including the selected custom dimensions.
  6. Click Enable.
  7. At the confirmation message, click Yes.
    Confirmation message

    The enablement process takes a moment to complete.

    Status window
  8. At the information message, click OK.
    Information message
  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.
    Navigate to the Configure page
  2. From the Configure dropdown, select Capital.
    Go to Capital
  3. From the list of components, click Assets.
    Assets component
  4. In Assets, click Actions, and then select Add.
    Asset dialog
  5. Then, select Provided Members.
    Selecting Provided Members

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

    The added provided member is listed in the dialog.

    Assets dialog
  7. Click Save.
  8. At the information message, click OK.
    Information message
  9. Click Close.

Refreshing the Database

  1. On the Configure page for Capital, click Actions, and then select Refresh Database.
    Actions
  2. In Refresh Database, click Create.
    Refresh database dialog
  3. In the next Refresh Database dialog, accept default selections and click Refresh Database.
    Refresh database options
  4. At the Refresh Database confirmation message, click Refresh.
    Refresh database confirmation message

    The cube refresh process takes a moment to complete.

    Cube refresh progress
  5. When the status displays Succeeded, click Finish.
    Completed
  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.
    Planning and Forecast Preparation
  2. For Current Fiscal Year, select FY22.
    Current Fiscal Year
  3. Review the selected Period, Plan Start Year, and planning frequency for the Plan scenario.
    Calendar selections
  4. Click Forecast and review the planning frequency selections.
    Forecast scenario planning frequency
  5. Click Save.
  6. At the Validation message, click OK.
    Validation message
  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.
    Go to Application Overview
  2. Click Dimensions.
    Go to Dimensions
  3. From the Cube dropdown, select OEP_CPX.
    Select OEP_CPX
  4. From the list of dimensions, click Currency.
    Currency dimension
  5. In the grid of Edit Member Properties for Currency, under Currency, expand Input Currencies.
    Expand Input Currencies

    USD is listed as an input currency.

    USD
  6. For USD, scroll to the right, locate the Precision column, and set it to 0.
    Precision column
  7. Click Save.
  8. Click Cancel.

Assigning Values to User Variables

  1. Click Navigator (Navigator), then under Tools, click User Preferences.
    Go to User Preferences
  2. On the left, click User Variables.
    Go to User variables
  3. For Entity, click its Member Selector (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 (Member Selector) and select FY22. as the variable's value.
  5. Click Save.
  6. At the information message, click OK.
    Information message

Setting Display Preferences

  1. On the left, click Display.
    Go to Display
  2. Under Number Formatting, set Thousands Separator to Comma.
    Thousands Operator
  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 (Navigator), then under Capital, click Investments.
    Go to Investments
  2. From the vertical tabs on the left, click Assumptions (Assumptions).
    Assumptions

    Depreciation & Amortization Assumptions is displayed.

    Depreciation and Amortization Assumptions
  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.
    CPL Assumptions
  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 (Lease Asset Planning).
    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 (Go).
    Asset Class
  3. In New Leased Assets, within the whitespace, right-click and select Add New Leased Asset.
    Add New Leased Assets
  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.
    Add Lease Asset details
  6. At the information message, click OK.
    Information message

    The new lease asset is displayed on the grid.

    New lease asset
  7. In the grid, right-click LeaseAsset001 and select Calculate Lease.
    Calculate Lease
  8. At the information message, click OK.
    Information message

    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.

    Dashboard
  9. From the cards on top, click Analysis.
    Analysis
  10. From the vertical tabs on the left, click Financial Statements (Financial Statements).
    Financial Statements
  11. Review the contents of the Balance Sheet. Expand periods (Year Total) to drill-through values.
    Balance Sheet
  12. From the horizonal tabs at the bottom, click Cash Flow Impacts and review the impact of lease payments to the cash flow.
    Cash Flow Impact
  13. From the horizontal tabs at the bottom, click Profit and Loss Impacts and review depreciation and interest expenses.
    Profit and Loss

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.
    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 (Go).
  4. In the grid, for LeaseAsset001, set Lease Term (in Years) to 8.
    Set lease term
  5. On the upper right of the form, click Save (Save).
  6. At the information message, click OK.
  7. In the grid, right-click LeaseAsset001 and select Calculate Lease.
    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.

    Updated lease calculations
  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 (Go).
  2. In the grid, for LeaseAsset001, set:
    • Lease Term (In Years) to 4
    • Ownership After Lease Term to Lessee
      Set Ownership
  3. On the upper right of the form, click Save (Save).
  4. At the information message, click OK.
  5. In the grid, right-click LeaseAsset001 and select Calculate Lease.
    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.

    Updated dashboard
  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 (Go).
  2. In the grid, for LeaseAsset001, set:
  3. On the upper right of the form, click Save (Save).
  4. At the information message, click OK.
  5. In the grid, right-click LeaseAsset001 and select Calculate Lease.
    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.

    Updated dashboard
  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 (Go).
  2. In the grid, for LeaseAsset001, set:
    • Lease Term (In Years) to 4
    • Lease Payment to 5000
      Set lease term
      Set lease payment

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

    Updated dashboard
  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 (Go).
  2. In the grid, for LeaseAsset001, set:
    • Index Rate to 3%
    • Lease Payment to 40000
      Set index rate and lease payment

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

    Updated dashboard
  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 (Go).
  2. In New Leased Assets, within the whitespace, right-click and select Add New Leased Asset.
    Add New Leased Assets
  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.
    Add Lease Asset details
  5. At the information message, click OK.
    Information message

    The new lease asset is displayed on the grid.

    New lease asset
  6. In the grid, right-click RentFree and select Calculate Lease.
    Calculate Lease
  7. At the information message, click OK.
    Information message

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

    Dashboard

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

    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.
    Information message
  13. At the bottom, click the Lease Asset Planning horizontal tab.
  14. For RentFree, review the PV of Lease value.
    PV of Lease
  15. In the grid, right-click RentFree and select Calculate Lease.
    Calculate Lease
  16. At the information message, click OK.
    Information message

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

    Dashboard

    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 (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.
    Application Overview
  2. Click Dimensions.
    Dimensions
  3. From the Cube dropdown, select OEP_CPX.
    Cube dropdown
  4. Click Asset Detail.
    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 (Add Child).
    Adding child members
  8. In Add Child, set the number of members to add to 2, and then click Apply.
    Add 2 members

    Two untitled members rows are added under OCX_Existing Lease.

    Untitled members
  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.
    Lease members with data storage set to Store
  11. Set the Default Alias Table entries to match the member names.
    Default alias
  12. Click Save.
  13. Click Refresh database (Refresh Database).
  14. In the first Refresh Database dialog, accept all default selections and click Refresh Database.
    Refresh database dialog
  15. At the Refresh Database prompt, click Refresh.
    Refresh Database prompt

    Refreshing the database takes a moment to complete.

    Cube Refresh status
  16. When the cube refresh progress completes, click Finish.
    Cube refresh completed
  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.
    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.
    Import data dialog
  4. Navigate to where you saved Existing Leases.csv, then select or open it.

    Once selected, it displays as:

    File selected
  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.
    Information message
  7. Click Close, twice to close both Import Data dialogs.
  8. From the cards at the top, click Jobs.
    Jobs
  9. In Jobs, locate the following jobs and verify that they completed successfully:
    Jobs

Reviewing the Imported Existing Assets

  1. Click Navigator (Navigator), then under Capital, click Existing Assets.
    Go to Existing Assets
  2. From the vertical tabs on the left, click Existing Leased Assets (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 (Go).
  4. In the grid, verify that the imported lease assets, Lease002 and Lease003 are displayed.
    Existing Leased Assets
  5. Locate the Index Rate column and, for both lease assets, set it to 1%.
    Index Rate
  6. On the upper right of the form, click Save (Save).
  7. At the information message, click OK.
  8. Right-click Existing Lease and select Calculate All.
    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.
    Updated dashboard
  10. Optionally review the impact on Financial Statements in the Analysis card.

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