Classifying an Activation Group

Once the Business Owner or Accountant has assessed and approved the activation group, the Accountant has to review the suggested classification, the information in the Contract Classification Summary section at the bottom of the page, and the financial schedules.

The Classification section shows the Main Accounting Standard and Alternative Standard configured for the company code. Based on the configured classification thresholds for the company code and the information entered in the contract, lease component, and activation group, the system provides a suggested classification. Once the activation group has been assessed and approved, the Accountant can override the suggested classification if required, and confirm the classification.

Note: If the contract is a non-lease service contract, short term lease, or low value lease (set in the Lease Type field), the suggested classification cannot be changed.

Once the activation group is classified, the Activation Group Status changes from "Pending Classification" to "Classified", and the overall Contract Phase changes from "Setup" to "On-boarding". Only the schedules for the selected classification will remain available.

The Contract Classification Summary section at the bottom of the page contains a summary of the information entered to aid users in determining the classification. The following information is displayed:

  • Main or Alternative Accounting Standards: Indicates the main and alternative accounting standards for the company code.
  • FMV: Indicates the value of the asset on the market.
  • PV (Total/Unit): To calculate the Present Value, the application uses the interest rate identified in the Interest Rate field.
    • The application determines which GRV to use in the PV calculation as follows:
      • The expected GRV payment (if it was entered) is used for the standards ASC 842, IFRS 16, and GASB 87.
      • The total GRV is used for the standards ASC 840 and IAS 17.
    • The PV amount is displayed in the contract currency, and in all configured group currencies (if parallel currency is enabled for the company code).

    Note: The calculated PV value only appears once the contract is sent for assessment (and the financial schedules are generated).

    Note: For short term, low value, and service contracts, the PV is always 0.

  • PVMLP (Total/Unit): To calculate the Present Value of the Minimum Lease Payments, the application uses the interest rate identified in the Interest Rate field.
    • The application determines which GRV to use in the PVMLP calculation as follows:
      • Uses the expected GRV payment (if it was entered) for the standards IFRS 16 and GASB 87.
      • Uses the total GRV amount for the standards IAS 17, ASC 840, and ASC 842.
    • The PVMLP amount is displayed in the contract currency, and in all configured group currencies (if parallel currency is enabled for the company code).

    Note: The calculated PVMLP value only appears once the contract is sent for assessment (and the financial schedules are generated).

    Note: For short term, low value, and service contracts, the PVMLP is always 0.

  • Interest Rate: Displays the interest rate used in the calculation of the PV and PVMLP:
    • For finance leases in the old standards (ASC 840 and IAS 17):
      • If the Contract Rate is not present, the Incremental Borrowing Rate is used.
      • If the Contract Rate is provided:
        • It is used for IAS 17.
        • The application uses the lower of the Contract Rate or Incremental Borrowing Rate for ASC 840.
    • For both finance and operating leases in the new standards (ASC 842, IFRS 16, and GASB 87):
      • The interest rate used to generate the schedule as well as to calculate the PV (i.e., initial liability) is determined as follows:
        • If the Contract Rate is provided, it is used.
        • Otherwise, the Incremental Borrowing Rate is used.
  • Useful Life (months): The life used for depreciating an asset.

    Note: For short term, low value, and service contracts, the Useful Life is always 0.

  • Term (months) and Term (days): The duration of the activation group (based on all of the terms in the Standard category), in months and days. If extension or early termination terms are reasonably certain to be exercised, the adjusted dates are used only for the IFRS 16, ASC 842, and GASB 87 standards.

    Note: The application uses the shorter of the two values Useful Life and Term for the Right of Use (ROU) value, unless there is a Purchase Option selected. In this case, the application always sends the Useful Life as the ROU value.

  • Purchase Option: Indicates if a Purchase Option term is likely to be exercised for the activation group.

Note: If the Accountant believes that the terms or assessment of the activation group are incorrect, they can click Rework before confirm the classification to be able to make some changes. The activation group will then have to be approved again. If the Accountant needs to change the confirmed classification, they can also call back their confirmation.

To classify an activation group:

  1. Load the activation group and click Classification in the left-panel.
  2. Review the Suggested Classification values, and the Contract Classification Summary information at the bottom of the page.
  3. Set the value for the Confirm Classification field, for all listed accounting standards.

    Note: The classification cannot be changed for non-lease service contracts, short term leases, or low value leases.

  4. At the top of the page, click Confirm Classification.
  5. Click Callback to return the Activation Group Status to "Pending Classification" to make changes to the classification. Note that once the activation group is activated, the only way to make changes is via an event.

See also:  

Nakisa Lease Administration 2022.R2-SP © 2024

 

 

Nakisa Inc. All rights reserved worldwide.