Indexation with Indexed Currencies

When a contract is set up with indexed currencies, you must use indexation events to regularly update the financial schedules based on the latest conversion rate.

When you perform an indexation event on an activation group, it only applies to terms that have "Apply Indexation" set. The rate is calculated by dividing the new Referenced Index Rate by the Base Reference Rate (i.e., the original rate at inception), and is applied to the term amount. This indexed amount is recorded under different columns in the financial schedules, depending on the accounting standards:

  • IFRS 16: The indexed amount is capitalized and recorded under Index Lease Payment. When a subsequent reassessment, decrease asset value, or decrease lease term event occurs, any remaining index payment amount is shifted to a payment under the Standard Term Lease Payment column.
  • ASC 842: The indexed amount is recorded under Index Non-Lease Payment. When a subsequent reassessment, decrease asset value, or decrease lease term event occurs, any remaining non-lease payment amount is capitalized and shifted to a payment under the Standard Term Lease Payment column.

    Note: After the draft is merged, the schedules for ASC 842 will not display a highlighted event line because differences due to indexation rate changes are considered to be expenses, and the liability schedules are not changed.

If an indexation event needs to be performed on an activation group that was activated without a CPI type defined, you must first perform a separate reassessment event to set the CPI type.

Note that if you perform an activation group event to reassess terms or decrease the asset value or lease term, the exercised/unexercised terms use the last indexation Reference Date used for that activation group to convert the contract currency amount to company currency. This updates both the Base Indexation Rate and the Reference Indexation Rate in the terms.

To enter an indexation event to update indexed currencies:

  1. Open the required activation group.
  2. Click Event in the activation group header.

  3. In the Create Event pop-up:
    1. Enter an Event Name.
    2. Select a Modification Date, which is the effective date of the event. The ROU liability impact is recognized as of this date.
    3. Set the Modification Reason to "Indexation".
    4. If the activation group is classified under ASC 842 can set the field Use Non Lease on Indexation, if required:
      • Unselected: The application immediately capitalizes the index amount.
      • Selected: The application records the index amount under Index Non-Lease Payment, and only capitalizes index payments in subsequent non-indexation events.
    5. Click Submit.
  4. Go to the activation group Accounting page.
    1. If the CPI type is CPI Global, the following CPI fields have updated:
      • The Reference Date fields for lease and/or non-lease terms have automatically been set to the Modification Date of the event. Change the date if required.
      • The Current Index Level fields for lease and/or non-lease terms show the index level configured for the updated Reference Date.
    2. If the CPI type is set to CPI Local, enter a new value for the field Current Index Level.
  5. On the Terms & Conditions page, click an indexed term to review the following fields:
    • Base Indexation Rate: The original indexation rate used when the term was created in the lease component, or the indexation rate of the latest non-indexation event that had a financial impact (such as a reassessment).
    • Base Indexation Date: The original indexation Reference Date used when the term was created in the lease component, or the date of the latest non-indexation event that had a financial impact.
    • Reference Indexation Rate: The updated indexation rate used for this indexation event.
    • Reference Indexation Date: The updated indexation Reference Date used for this indexation event.
  6. At any time, click Delta to review all the changes. You can use the Select Revision drop-down to view the details from previous revisions.
  7. Click Generate Schedules to view the change in the schedules.
  8. Click Send to Assessment, which will also automatically regenerate the schedules.
  9. Click Journals to view the recognition journal entries that will be posted for this event.
  10. Click Approve and review the changes in the Event Modifications Summary pop-up. Click Approve Modifications to approve the changes.
    • Send the draft back for changes by clicking Rework.
  11. Click Confirm Classification.
  12. Click Activate to make this draft the new active version of the activation group, or click Rework to send the draft back for changes.

See also:  

Nakisa Lease Administration 2023.R4 © 2024

 

 

Nakisa Inc. All rights reserved worldwide.