Decrease Lease Term or Asset Value

To decrease the carrying amount of the right-of-use asset and the carrying amount of the lease liability in the same proportion (yet with different absolute adjustment amounts), you can perform a lease modification with the Reason Code “Decrease Lease Term” or “Decrease Asset Value”. These types of lease modification events allow you to enter asset decrease amounts that are independent of the lease liability decrease amounts that result from changes in the Terms & Conditions.

  • For a Decrease Lease Term:
    • The application generates the following postings: 
      • For IFRS16 and GASB 87, the application generates three adjustment postings (for liability, asset, and gain/loss).
      • For ASC842, the application generates two adjustment postings (for liability and asset).
    • You must also change the ROU end date of the standard term.
  • For a Decrease Asset Value: 
    • The application generates three adjustment postings (for liability, asset, and gain/loss) for finance leases under all standards and for ASC842 operating leases.
    • You must also add a Reduction term that will decrease the carrying amount of the lease liability in the same proportion as the decrease in carrying amount of the right-of-use asset

When there is a negative ROU delta amount following a lease modification for Decrease Asset Value or Decrease Lease Term, the application uses a weighted average exchange rate. If the amount is positive, the application uses the spot rate to convert the amount to company and group currencies. See Weighted Average Exchange Rate for more information.

Note: Any other changes required (e.g., change in the Contract Rate or IBR) must be performed in a separate lease modification event. The same effective date can be used for the second event.

For illustrative examples of decrease lease term and decrease asset value scenarios, refer to Appendix: Lease Event Example Scenarios.

To decrease the lease term or asset value:

  1. Open the contract.
  2. Click Context Menu > Lease Modification.
    • Set the Amendment Date to represent the date the amendment took place. Note that this field can be set to any date, and does not impact calculations or reporting.
    • In the field Reason Code, select "Decrease Lease Term" or "Decrease Asset Value".
      • For "Decrease Lease Term", the field ROU Asset Decrease Amount (IFRS) and/or ROU Asset Decrease Amount (GASB) must be manually calculated and entered for IFRS16 and GASB 87. No value is required for ASC842.
      • For "Decrease Asset Value", the fields ROU Asset Decrease Amount (Finance) and ROU Asset Decrease Amount (Operating) must be manually calculated and entered.

      Note: The asset decrease amount fields are not used if the contract is a non-lease service contract, short term lease, or low value lease (set in the Lease Type field).

    • Enter a Description.
    • Click Submit. The draft of the contract is created and loaded automatically.

    Note: Do not modify the contract interest rate in this lease modification event.

  3. Navigate to the lease component Terms & Conditions.
    • For Decrease Lease Term, modify the ROU End Date of the standard term that reflects the decrease in asset value entered at the beginning of the event.
    • For Decrease Asset Value, add a Reduction term that will decrease the carrying amount of lease liability in the same proportion as the decrease in carrying amount of the right-of-use asset entered at the beginning of the event.
  4. Go through the contract approval process.
  5. Maintain the activation groups, as required.
  6. Assess the activation group.
    1. After clicking Send to Assessment, you must select the Effective Date, which indicates the first day where the modifications will be implemented. The Effective Date cannot be before the Effective Date of a previous event, and can only be in a month during the lease term of the contract that does not have any payments, accruals, or asset depreciation posted. If any posting documents have been generated, all previous periods are unavailable. If you are exercising a term, the Effective Date must be before or equal to the ROU Start Date of the new term.
      • When payments are in advance, the possible Effective Dates are on the same day of the month as the base rent payment date (e.g., only the 1st of the month, or only the 10th of the month).
      • When payments are in arrears, the possible Effective Dates are one day after the base rent payments.
    2. Modify the Posting Date or Document Date, if required. Note that by default, the Document Date is set to the Effective Date.
    3. Click Submit.

    Note: If using IBR, do not update the rates in this event.

  7. Review the adjustment postings that will be done once the reassessment is complete.
  8. The Accountant must click Confirm Classification, even though the selected classification cannot be changed.
  9. Return to the contract. Click Context Menu > Complete Assessment.
    • If users have posted payments, accruals, or asset depreciation in the master version of the contract past the selected Effective Date, then the draft cannot be merged back to the master, and a Sync report with the errors is generated. It can be accessed from the Notification Center, or by clicking .
    • In most cases, if there is a conflict between the draft and master versions, the draft will have to be deleted and started again.
  10. If the system is in standalone or hybrid mode, one of the following options are available to complete the posting process: 

    • Update the status from "Posted (Internal)" to "Posted" via transaction Excel imports and exports.
    • If an SAP Posting Bot is configured to run with the application, it will regularly transfer internal documents to SAP. The status changes from "Posted (Internal)" to "Posting (External)".
      • If the posting to SAP is successful, the status then changes to "Posted (External)".
      • If the posting to SAP fails, the status changes to "Failed (External)". The next time the posting bot runs, it will pick up the failed postings to reattempt the posting. If required, click Reverse to reverse the internally generated document (e.g., if the GL account configuration needs to be changed).

      Note: For details about documents posted by the SAP Posting Bot, copy the Document number and enter it in the following URL (where <hostname> is the Web server name of your current Nakisa Lease Administration instance):

      https://<hostname>/leasing/app/proxy/jebot/report/<document-number>/

See also:  

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