Reassessing Activation Groups

If required, a simple activation group reassessment can be done without opening up the entire contract. A reassessment refers to whether an existing term and condition (e.g., early termination or buyout) is likely to be executed or not. Casualties can also be entered at the activation group level, which will retire all of the assets in the group.

The workflow for the activation group must be re-executed for reassessments and casualties:

  1. The activation group needs to be reassessed.
  2. The classification of the activation group cannot be modified, but the step to confirm classification must be repeated regardless.

    Note: If the suggested classification by the system changes, the Accountant can choose to do an early termination on the activation group (with a Termination Option term), and copy the contract and lease component to create a new activation group with the new classification.

  3. The only step that is not required is the activation of the activation group.
  4. The draft must be merged back to the master version of the contract.

When a user opens a contract that has an open draft, the button Open Draft appears at the top of the contract. The objects that can be changed in the draft are indicated by the yellow header. Note that if you navigate to another activation group in the draft, the header will be red because it is not the one that is currently being reassessed (even though it says DRAFT).

Note: While a draft is open, you cannot open another draft (i.e., users will be blocked from doing a lease modification, reassessment, or casualty) or enter a unit replacement.

Following a lease event, the Incremental Borrowing Rates (IBR) for the activation group can updated with the rates configured the in the Nakisa AdminConsole, based on the selected effective date. The default setting of the "Update IBR" checkbox depends on the lease event type, but can be overridden by users:

  • Lease Modifications: "Update IBR" is checked by default.
  • Casualty: "Update IBR" is checked by default.
  • Reassessment with "Early Buyout" or "Early Termination" Reason Code: "Update IBR" is checked by default.
  • Reassessment with "Reassessment" Reason Code: "Update IBR" is unchecked by default.

For an illustrative example of a reassessment scenario, refer to Scenario 4: Reassessment of a Purchase Option.

When there is a negative ROU delta amount following a lease modification for Decrease Asset Value or Decrease Lease Term, or a reassessment to add a Reduction 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 Reassessing Activation Groups for more information.

Note: In most cases, users cannot merge a draft when the changes have no financial impact. If you require this type of reassessment to be allowed, contact your system administrator.

If a reassessment event needs to be reversed, any postings done after the event effective date must be reversed, and a new event created to undo the changes made by the original reassessment. Note that casualty events cannot be reversed because the asset has been deactivated. For example, an Extension term was selected as likely to be executed during a reassessment with an effective set to June 1st, and the postings for June, July, and August were executed. To reverse this event, reverse all of the postings for June, July, and August, and then perform another reassessment to unselect the Extension term with the same effective date of June 1st.

To reassess an activation group:

  1. Open the activation group.
  2. If only part of the activation group needs to be reassessed, split the activation group before starting the reassessment.
  3. Click Context Menu > Reassessment.
  4. Select the Reason Code for the reassessment:
    • Early Buyout
    • Early Termination
    • Reassessment

      Note: Purchase Options can be added on a date after the lease ends or on the same day as an existing payment. If the Purchase option is entered in the middle of the contract, the lease will be terminated early if the field Early Buyout is selected in the Purchase Option term.

  5. To change the Contract Rate for the activation group, make sure that the Modify Contract Rate checkbox is selected. You must then enter the new rate in the Contract Rate field. The default setting of Modify Contract Rate depends on the Reason Code:

    • Early Buyout: Modify Contract Rate is checked by default.
    • Early Termination: Modify Contract Rate is checked by default.
    • Reassessment: Modify Contract Rate is unchecked by default.

    Note the following: 

    • Setting the Contract Rate field to 0 means that the IBR value (as of the selected Effective Date for the event) will be used instead.
    • If the activation group is using IBR values, then you can choose to update the IBR value or not when the it is sent to assessment.
    • Contract Rate cannot be set if the contract is a non-lease service contract, short term lease, or low value lease (set in the Lease Type field).
  6. Enter a Description of the reassessment event.
  7. The current Accounting Rule and Classification for both the main and alternative accounting standards is displayed.
  8. The fields Unit GBV (gross book value) and Unit Accumulated Depreciation are both grayed out if the application is connected to SAP.
  9. Click Submit. The draft of the activation group is created and loaded automatically.
  10. Maintain the activation groups, as required.
    • If an indexation event has already been performed and you select an Extension term as likely to be exercised, the Extension term shows the checkbox "Apply Earlier Indexation". If it is checked, then the indexation rate is also applied to the Extension term.
    • Note that if payments have already been posted for a Reduction or Supplemental term, you can still unexercise the term as of a period that does not have any posting documents generated.
    • If you are exercising a Cash Incentive term and payments are in arrears, any other required changes with financial impact (e.g., exercising another term or changing the Contract Rate or IBR) must be performed in a separate event. Note that any Cash Incentive term in the first period of the lease must be added at inception (and cannot be added through an event).
  11. Assess the activation group.
    1. After clicking Send to Assessment, you must select the Effective Date. 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.

      Note the following:

      • For Termination Options, if the Effective Date is in the past or in the current period, all asset depreciation postings up to the effective date should be posted.
      • If you are exercising a Cash Incentive term, the Effective Date of the event and the First Payment Date of the term must be set to the first period that does not have any postings or the first valid date after an event was performed on the contract. You must also post all transactions up to the Effective Date. Additionally, the Effective Date must always be on the same day of the month as the base rent payment date (even when payments are in arrears).
    2. Modify the Posting Date or Document Date, if required. Note that by default, the Document Date is set to the Effective Date.
    3. If required, change the setting of Update IBR. If checked, the application selects a new IBR based on the Effective Date and the IBR rates configured in the Nakisa AdminConsole.
      • This checkbox appears if the contract is using IBR (i.e., no Contract Rate is set).
      • If the contract is classified as an ASC 840 Capital lease, the checkbox is always showsn (because even if a Contract Rate is defined, the lower of IBR and Contract Rate is used).
      • If the active contract has a Contract Rate defined but in the event it was changed to 0, then the checkbox appears and cannot be unchecked because the application must look up a new IBR.
    4. Click Submit.

      If a Termination Option is exercised, the application shows a warning message if the termination payment does not cover the Unpaid Interest Expense Balance at that point. Note that even though the total payments do not cover the total liability balance, the application will not stop the user from continuing with the event. You can delete the reassessment draft and create a lease modification event to modify the Termination Option payment.

  12. Review the adjustment postings that will be done once the reassessment is complete.
  13. Review the suggested classification, and click Confirm Classification.
  14. Click Context Menu > Complete Remeasurement. The draft version is merged back to the master version.
    • 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.
  15. 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>/

To view the master version of the contract:

  1. If at any point you would like to view the master version of the contract, click Context Menu > View Master.
  2. To return to the draft version, click the button Open Draft.

To delete the draft version:

  1. If the draft version needs to be deleted at any point, open the draft and navigate to the contract.
  2. Click Context Menu > Delete Remeasurement, and click Yes to confirm the deletion.

To reverse a reassessment event:

  1. Reverse any postings made after the reassessment event effective date.
  2. Add a new event that undoes the changes made in the original reassessment, and use the same effective date. The new adjustment postings will cancel out the original postings.

    Note: If the effective date is in a closed period, change the Posting Date to be in an open period.

See also:  

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