The Investments component provides several options to help you manage new capital asset investments.
After defining or reviewing capital assumptions, add capital assets and enter asset details. You can manage these asset types:
Table 6-1 Managing New Capital Assets
|Asset Type||Description||More Information|
||Analyzing Capital Financials with Dashboards|
|New Asset Planning||Add new capital assets and asset details and manage new assets and new leased assets.||Adding New Capital Assets|
|Lease Asset Planning||Add new leased assets and asset details and manage new leased assets.||Adding New Leased Assets|
Enter assumptions to drive capital asset financials.
|Entering Capital Asset Assumptions|
Adding New Capital Assets
After defining or reviewing capital assumptions, add capital assets and enter asset details.
Click Investments and then click New Asset Planning .
On the New Asset Detail page, select the Asset Class from the drop down list. For example, select a category such Machinery, Buildings or Vehicles, depending on what’s defined for your business.
If you've integrated Capital and Projects, you can select a project to see the planned asset value for the project.
On the New Asset Detail page, right-click a row, and from the Actions menu, select Add New Asset.
Enter asset details and then click Launch.
The fields marked with * are mandatory fields that drive the asset cost and depreciation and other expense calculations.
Click the Funding horizontal tab to enter funding assumptions for your assets.
If you’ve entered assumption for cash flow, funding, depreciation/amortization, those values are filled in by default but you can override them at the asset level.
Click the Asset Related Expenses horizontal tab to enter other asset expenses.
If you’ve entered assumptions for asset related expenses, those values are filled in by default but you can override them at the asset level.
Click the Detailed Justification horizontal tab to enter a text-based description and justification for the new capital asset.
When you’re done adding assets, on the New Asset Detail page, hover over the upper right side of the page to activate the menu, and from the Actions menu, select Calculate Assets. You’ll see the new assets reflected in the graphs on the bottom of the page.
From the Actions menu, select Roll Up to sum the asset class data for use in Financials.
If you've integrated Capital with Financials, when you are ready to see Capital data in Financials, ask your administrator to run the required rules and push data.
If you are integrating Capital with Projects, you can review capitalized assets that were pushed from Projects by selecting the asset class and project. You can review the New Assets from Projects and Capital Work in Progress dashboards to review capitalized projects information.
When adding an asset, if the salvage value is set to 0 (zero), the DB Year or DB Period depreciation method may not produce the desired results. To produce correct depreciation calculations when using the DB Year depreciation method, Oracle recommends that the salvage value be set to at least 1% of the basic cost.
After calculating the asset, if currency precision is set to 0, depreciation values for Declining balance Year are rounded and may not appear correct. However, internally the full correct value is stored and used in calculations.
You can remove a new asset:
On the New Asset Detail page, select the asset, and then from the Actions menu, select Remove Asset.
Adding New Leased Assets
If you are performing lease asset planning without using the IFRS-16 standard, there are two types of leased assets:
Operating Lease—Similar to rental agreements, operating leases are for short durations. The lessor, who retains exposure to the risks and benefits of ownership, generally covers the maintenance, insurance, and repair costs of the asset.
Capitalized Lease—Leases that last for almost the life of the asset and where the asset is worthless after the lease period. The lessee effectively assumes all the risks and benefits of ownership, including maintenance, repairs, insurance, and obsolescence. The lessor’s role is primarily to provide financing for the asset. At termination, the asset is usually transferred to the lessee for a specified sum, which is similar to buying an asset in installments over time.
If you are performing lease asset planning using the IFRS-16 standard (your administrator enabled IFRS16 – Standard for the application), all leases are operating leases.
Click Investments and then click Lease Asset Planning .
On the New Asset Detail page, select the Asset Class from the drop down list. For example, select a category such Desktop, Furniture, or Office Equipment, depending on what’s defined for your business.
If you’ve integrated Capital and Projects, select a project to associate the asset with.
On the Lease Asset Planning page, right-click a row, and from the Actions menu, select Add New Leased Asset.
On the Add Leased Asset form, enter details such as lease term, lease payment, payment frequency. For IFRS-16 Standard-enabled applications, specify an Index Rate and select the Index Rate Basis (Annual or Payment Frequency). Then click Launch.
Index Rate Basis enables you to have either an annual index rate increase or an index rate increase that is tied to the payment frequency.
If needed, for IFRS-16 Standard-enabled applications, you can set Low Value Override to Yes for an asset. When Low Value Override is set to Yes, the asset is calculated as a low value asset regardless of the lease asset value. By default, Low Value Override is set to No.
- Right-click a row, and from the Actions menu, select Calculate Lease to see the updated impact of leased assets.
Defining Rent Free Periods for Lease Assets
For IFRS-16 Standard-enabled applications, after you add new lease assets, you can specify rent free periods for a lease.
Click Investments and then click Lease Asset Planning .
Click the Rent Free Periods form.
- For each lease asset, select Yes for any periods that should be rent free, and then click Save.
- Click the Lease Asset Planning form, right-click a row,
and from the Actions menu, select Calculate
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.
Lease Asset Planning without IFRS-16 Standard
When a leased asset is added, Capital automatically selects a lease type (Operating Lease or Capitalized Lease) based on the parameters entered. After you add a leased asset, you can change the lease type on the New Leased Asset Details form. Note that if you change the asset parameters later, you must also remember to change the lease type, if applicable.
Criteria that Capital applies when classifying a lease as Operating versus Capitalized:
- Transfer of ownership at the end of the lease term
- Purchase option at a certain date during the lease period at a bargain (much less than the expected market value of the asset at that time)
- The lease term is for the major part of the asset's useful life (at least 75% of the asset’s useful life)
- The present value of the lease payments exceeds 90% of the initial value of the asset
Capitalized leases affect the Income Statement and the Balance Sheet, whereas operating leases affect only the Income Statement.
Impact of leasing type on financial statements:
Operating Lease—The lease payments are recorded as operating expense (rent expense) on the Income Statement.
- Capitalized Lease:
- Records an asset and liability on the Balance Sheet to reflect the value of equipment and the obligation of the lease payments respectively (debt)
- Depreciates the asset over its useful life, which reduces the asset on the Balance Sheet and generates a depreciation expense on the Income Statement
- The interest associated with the lease must be listed as an expense on the Income Statement (imputed interest payment)
Note the following about Present Value of Lease calculations:
Payment timing is not considered in the calculation for Present Value of Lease.
When the payment frequency is anything other than annual, the present value of the lease is calculated based on the Lease Payment value (as entered by the user) and by converting the actual value the user entered for the interest rate and number of periods, based on the payment frequency .
Present Value of Lease is not displayed as a negative number.
Lease Asset Planning with IFRS-16 Standard
When IFRS16-Standard is enabled, the Calculate Leased Assets rule uses the new standards for calculating lease assets.
- All leases are recognized on the balance sheet except for low value or low tenure leases.
- Low value or low tenure lease thresholds are based on the values you entered in Depreciation & Amortization Assumptions for Low Value Lease Term (in Months) and Low Value Lease Amount. Lease assets that meet the low value thresholds you entered 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.
Payment frequency is taken into account when determining if a lease asset is a low value asset. The value of the asset is calculated as (
payment frequency). If the calculated value is less than the Low Value Lease Amount, the asset is considered to be a low value lease asset. For example, if the Low Value Lease Amount is $5000, and a lease asset has a payment of $500 with a monthly payment frequency, the lease asset value is calculated as $500 x 12 months = $6000. Because $6000 is higher than the Low Value Lease Amount of $5000, this lease asset is not considered to be a low value asset. However, if this same asset has a semi-annual payment frequency, the lease asset value is calculated as $500 x 2 = $1000, which is less than the Low Value Lease Amount of $5,000, and is considered to be a low value asset.
If a lease payment is less than or equal to the low value lease amount, rent is calculated without calculating PV or NPV of the assets.
If a lease payment term is less than or equal to low value lease term, rent is calculated without calculating PV or NPV of the assets.
If Low Value Override is set to Yes for an asset, the asset is calculated as a low value asset regardless of the lease asset value.
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). If you don’t set the index rate, the lease payments are the same for each period. The Calculate Leased Assets business rule takes the Index Rate and Index Rate Basis into account when calculating the NPV of an asset.
If you set an Index Rate for an asset, Calculate Leased Assets calculates NPV of the leased asset instead of PV of the leased asset.
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.
If you don't set an index rate for an asset, Calculate Leased Assets calculates PV of the asset.
If you defined rent free periods, 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 the rent free periods.
Lease asset depreciation varies based on the ownership of the lease. If ownership is with the lessor, depreciation is charged for lease term or until the end of useful life of the asset - whichever is earlier. If ownership is with the lessee, depreciation is charged for useful life of the asset.
Converting New Assets to Existing Assets
When you are ready to reconcile a planned new asset to an existing asset, on the New Asset Detail page or Lease Asset Planning page, select the asset and then from the Actions menu, select Convert New to Existing.
The asset and all the associated data is moved from new to existing assets.
Removing Lease AssetsYou can remove a lease asset:
On the Lease Asset Planning page, select the asset, and then from the Actions menu, select Remove Asset.