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Oracle FinancialsCloud

Using Lease Accounting

21A

Oracle Financials CloudUsing Lease Accounting

21APart Number F36395-01Copyright © 2011, 2020, Oracle and/or its affiliates.

Author: Mathew Daniel

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Contents

Preface i

1 Introduction to Lease Accounting 1Overview of Lease Accounting ................................................................................................................................................... 1

Key Features ................................................................................................................................................................................... 1

Create System Options ................................................................................................................................................................. 1

Create Primary Discount Rate Indexes ..................................................................................................................................... 2

Create Payment Term Templates ............................................................................................................................................... 3

Create Document Sequencing ................................................................................................................................................... 3

2 Create Leases 5Overview of Lease Creation ........................................................................................................................................................ 5

How Leases Are Created ............................................................................................................................................................. 5

How Amortizations are Created ................................................................................................................................................ 6

How You Select Proration Method ............................................................................................................................................ 7

How You Use Rate Adder ............................................................................................................................................................ 7

How You Give Document Details .............................................................................................................................................. 8

3 Create Assets 9How Assets Are Created .............................................................................................................................................................. 9

4 Create Payment Terms 11How You Select a Payment Terms Template .......................................................................................................................... 11

How You Select a Supplier for a Payment Term ................................................................................................................... 12

How Schedule is Given For Payment Terms .......................................................................................................................... 12

What Happens If You Enable Right of Use for Payment Terms ........................................................................................ 13

What Happens If You Enable Liability for Payment Terms ................................................................................................. 13

What Happens If You Enable Intercompany for Payment Terms ...................................................................................... 14

How You Create Payment Terms ............................................................................................................................................. 14


5 Create Options 17How You Select an Option ........................................................................................................................................................ 17

How You Select a Supplier for an Option .............................................................................................................................. 18

How Schedule is Given For Options ....................................................................................................................................... 18

What Happens If You Enable Right of Use for Options ...................................................................................................... 19

What Happens If You Enable Liability for Options .............................................................................................................. 19

What Happens If You Enable Intercompany for Options .................................................................................................... 19

How You Create Options ........................................................................................................................................................... 20

6 Lease Operations 21How You Use Seeded SLA Integration .................................................................................................................................... 21

How You Add Attachments to a Lease ................................................................................................................................... 21

How You Validate a Lease ......................................................................................................................................................... 22

How You Generate a Lease Schedule ..................................................................................................................................... 22

How You Activate a Lease ........................................................................................................................................................ 23

How You Search for Existing Leases ...................................................................................................................................... 24


Preface

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Chapter 1Introduction to Lease Accounting

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1 Introduction to Lease Accounting

Overview of Lease AccountingLease Accounting is a financial application that helps in the creation and maintenance of leases in a single repositoryand generates amortization schedules according to IFRS16 and ASC842 standards.

Lease Accounting provides the ability to capture information such as the lease details, assets, and payments. A leasevalidation process ensures quality data before activation. The amortization engine calculates the present value of theleases and the amortization of the right-of-use and the lease liability balances according to IFRS16 and ASC842.

The new accounting standards introduced in the past few years have transformed accounting rules that lessees mustfollow to comply. The following features of Lease Accounting help you to:

• have touch-less capabilities to manage and process leases, helping you to comply with IFRS16, ASC842, or boththese accounting standards in a seamless manner.

• improve planning with a single repository of all lease obligations.

• generate calculations for balance sheet balances and expenses.

Key FeaturesKey Features:

Lease Accounting helps you do the following activities:

• Create property and equipment leases

• Capture cash schedules needed for the generation of balances and invoices

• Generate balances required as per IFRS16 and ASC842 guidelines

• Generate amortization schedules using Daily Compounding Interest and Daily Amortizations

When you opt to generate schedules, cash schedules with amortizations are created. Along with this information,balances for right-of-use and lease liability are also generated based on different periods.

The balances and amortizations are calculated by discounting cash flows using discount rates on the lease.

Note: Currently, the only interest calculation method is the 'Daily Compounding Interest,' and the amortizationmethod is 'Daily Amortization.'

Using this information on the cash flows, initial measurement amounts as required by the standards are calculated.



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Create System OptionsLease Accounting requires three product setups to be completed before you can start using it.

These setups are as follows:

• System Options

• Discount Rate Indexes

• Payment Templates

Note: These setups are completed using file uploads using FSM only.

The system options definition is the primary step for creating setups for Lease Accounting.

You must ensure that the AP Financials options are already set up before setting up the system options.

The system options define all major calculation options, namely:

• You must provide the business unit and ledger for which the system options are defined.

• You must enable auto numbering for leases, assets, and payments.

• You must select the primary and secondary applicable accounting standards. The options are IFRS16 orASC842. If the primary is IFRS16, then the secondary will be ASC842, if both accounting standards areapplicable for reporting, and vice-versa.

• You can decide the amortization and interest calculation methods.

• You must select a currency conversion type of user, corporate, and such from GL. The conversion type is usedon the lease for foreign exchange payments.

• You must select the inventory organization which is needed for leasing from the inventory master.

• You must provide a GL calendar for calculations. If the calendar isn't selected, then the primary ledger'scalendar is used for calculations.

Create Primary Discount Rate IndexesYou can use the discount rate index for capturing discount rates required for the discounting of cash flows.

The discount rates effective on the amortization start date are used for the discounting of cash flows on the lease.

You can define multiple discount rate indexes for a business unit. The discount rate indexes can be grouped into logicalbuckets like 20 years leases, 10-year leases, and so on.

The discount rate indexes are associated with the lease and are based on the lease amortization date. A particulardiscount rate is fetched from the index and used for the discounting of cash flows.

You must provide the following information for enabling a discount rate index:

• You must select the business unit.

• You must enter the name and description of the index.The name and description help you group the indexes into a 10-year bucket, 15-year bucket, and so on, or someother logical grouping.



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• You must enter a series of discount rates with an effective from and to non-overlapping dates.

• You must also provide an effective start date on the header of the index.

Create Payment Term TemplatesYou can use the payment term templates for defining payments.

Most of the information needed to define a payment defaults from payment term templates.

You can create a payment term template by filling in the payment term template .csv file and importing the .csv file.

The service for the payment term then creates the payment term template.

The payment term template is created for a business unit. It's selected during payment creation, which aids in quickerand error-free data entry.

A payment term template requires the following information:

• You must enter the name of the template.

• You must enter a brief description.

• You must select the payment purpose and type.

• You must select the frequency of the payment.

• You must provide the supplier name and site.

• You must select the accounting classes for Right of Use, Lease Liability, Expenses, Gain/Loss, and ForeignExchange Gain/Loss, among others.

• You must select the check boxes for Right-of-Use, Liability, and Intercompany, as required.

Create Document SequencingYou must assign a document sequence to the business unit to leverage the auto-numbering functionality of leases,assets, and payments.



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Chapter 2Create Leases

5

2 Create Leases

Overview of Lease CreationYou can reach the lease creation page from the Navigator by clicking Lease Accounting and then Leases.

A lease creation page is organized into the following tabs:

• The Overview tab has key lease information as well as accounting classification and expense amortizationdetails. You can search for existing lease contracts in the header region.

• The Assets tab has the asset information. For property contracts, this includes information such as tenancydates and location. For equipment contracts, this includes the item, model, number of units, and location.

• The Payment tab displays the payment details, including disbursement terms, schedules, and accountingtreatment for the payments.

• The Options tab displays the option details, including disbursement terms, schedules, and accountingtreatment for the options.

• The Validations tab ensures all information is correct before generating cash flows and the amortizationschedules. Any errors in the validation process appear on the validations tab.

• The Schedules tab displays the generated schedules for the lease. The schedules are removed once the lease isactivated and the schedules are then given in the Lease Details report accessed through the Oracle BI Publisher.

• The Attachments tab enables you to add attachments to the lease.

How Leases Are CreatedOnce all the required setups are completed, you can start creating leases and their assets, payments, and options.

To access the lease creation:

1. From the Navigator, click Leases.2. The Lease page is displayed. The header section displays the search parameters for leases. In the body section,

you can view the lease information.3. Click New to open the Create Lease page.4. These fields are available as part of the lease creation:

Field Description

Business Unit Select the business unit of the lease.

Legal Entity Select the legal entity.

Lease Start Date Select the start date of the lease.



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Field Description

Lease End Date Select the end date of the lease.

Lessor Select the name of the lessor of the lease.

Asset Type Select the type of asset. The valid options are Property Lease and Equipment Lease.

Accounting Classification Select the account class. The valid options are Finance Lease or Operating Lease.

Discount Rate Index Select the discount rate index for the lease.

5. Click Save and Continue6. The entire lease contract is displayed, and you can include further information about the lease in the various

tabs.7. In the Overview tab, you can add or update the following lease information under the Lease Details section:

Field Description

Lease Name Retain or change the lease name.

Accounting Classification Retain or change the account class.

Description Enter a description for the lease.

8. In the Overview tab, you can add the following lease term information under the Term Details section:

Field Description

Lease Start Date Retain or change the lease start date.

Lease End Date Retain or change the lease end date.

Lease Term The calculated lease term is displayed in Years, Months, and Days.

Date Signed On Enter the signing date of the lease.



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How Amortizations are CreatedThe amortizations start along with the lease start date, and they end with the lease end date. You can view the discountrate index and the selected rate in the Lease page.

In the Overview tab, you can view or add the following amortization information under the Amortizations section:

Field Description

Amortization Start Date Select the amortization start date of the lease. The default date is the lease start date.

Amortization End Date The amortization end date is the same as the lease end date.

Discount Rate Index Retain or change the discount rate index.

Discount Rate The discount rate is displayed based on the selected discount rate index.

How You Select Proration MethodThe proration method is required to calculate the amortizations.

In the Overview tab, you can add the following amortization information under the Amortizations section:

Field Description

Proration Method Select the amortization proration method. The valid values are 'Days/Month' and '360 Days/Year"'

How You Use Rate AdderThe rate adder is used to give an additional discount more than the given discount rate in the discount rate index.

In the Overview tab, you can add the following amortization information under the Amortizations section:



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Field Description

Rate Adder Enter the rate adder for the amortization, if required.

How You Give Document DetailsThe document details for a lease include who the lease has been assigned to and who had abstracted the lease.

In the Overview tab, you can view or add the following document information under the Document Details section:

Field Description

Document Start Date Select the document start date of the lease. The default date is the lease start date.

Document End Date Select the document end date of the lease. The default date is the lease end date.

Abstracted By Select who has abstracted the lease.

Assigned To Select the lease assignee.


Chapter 3Create Assets

9

3 Create Assets

How Assets Are CreatedAfter adding the lease details in the Overview tab, you can enter the Asset information in the Assets tab.

1. Click New to display the Create Asset page2. These fields are available as part of the asset creation:

Field Description

Item Select the equipment or property item.

Model Enter the model of the item.

Asset Start Date Select the start date of the asset.

Asset End Date The asset end date is the same as the end date of the lease.

Units Enter the number of units.

Location Select the location of the asset.

3. Click Save and Close4. In the Assets tab, you can view or add the following asset information under the Asset Overview section:

Field Description

Asset Number The asset number is displayed.

Item Retain or change the item.

Model Retain or change the model.

Units Retain or change the units

Asset Start Date Retain or change the asset start date.

Asset End Date Retain or change the asset end date.


Chapter 3Create Assets

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Field Description

Asset Status The asset status is displayed.

5. In the Assets tab, you can view or add the following asset information under the Additional Details section:

Field Description

Location Retain or change the location of the asset.

Address The address of the location is displayed.

Employee Select the employee assigned to the asset.


Chapter 4Create Payment Terms

11

4 Create Payment Terms

How You Select a Payment Terms TemplateAfter adding the asset details in the Assets tab, you can enter the payment information in the Payments tab.

1. Click New to display the Create Payment page.2. These fields are available as part of the payment term creation:

Field Description

Payment Template Select the payment term template.

Supplier Select the supplier.

Supplier Site Select the supplier site.

Start Date Select the payment start date.

Amount Enter the payment amount.

Number of Payments Enter the number of payments.

Arrears Select arrears, if any payment arrears are due.

Payment Purpose Select the payment purpose.

Payment Type Select the payment type.

The valid options are Base Rent, Cleaning, Depreciation, Insurance, Operating Expense, Rent,and Percentage.

Asset Number Select the asset.

The valid options are Abatement, Appliance Rental, Base Rent, Common Area Maintenance,Cleaning, Deposit, Depreciation, Direct, And Escalation

Frequency Select the frequency of payment.

Currency Select the currency of payment.

3. Click Save and Close.



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4. In the Payments: Summary tab, you can view or add the following payment information under the Overviewsection:

Field Description

Payment Template The payment template name is displayed.

Number The payment number is displayed.

Payment Purpose Retain or change the payment purpose.

Payment Type Retain or change the payment type.

Payment Status The payment status is displayed.

Asset Number Retain or change the asset number.

Currency Retain or change the currency.

How You Select a Supplier for a Payment TermThe supplier section of the Payments: Summary tab in the Lease page gives the supplier information and the paymentterm information.

In the Payments: Summary tab, you can view or add the following payment information under the Supplier section:

Field Description

Supplier Retain or change the supplier name.

Supplier Site Retain or change the supplier site.

Purchase Order Number Enter the purchase order number.

Payment Term Select the payment term.



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How Schedule is Given For Payment TermsYou can schedule the payment terms as per your requirement.

In the Payments: Summary tab, you can view or add the following payment information under the Schedule section:

Field Description

Start Date Retain or change the payment term start date.

Frequency Retain or change the payment frequency.

Arrears If there are arrears associated with the payment, the check box is selected.

What Happens If You Enable Right of Use for PaymentTermsYou can select the Right-of-Use check box to include payment amount, which calculates the right-of-use for thepayment term.

Use only this check box for capitalizing expenses into Right-of-Use without liability, such as Initial Direct Cost.

In the Payments: Accounting tab, you can view or add the following payment information under the Compliance section:

Field Description

Right of Use Select the right-of-use option to include the payment amount for calculation of the right-of-use for the payment term.

What Happens If You Enable Liability for Payment TermsYou can select the liability check box to include the payment amount, which calculates the lease liability for the paymentterm.




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Field Description

Liability Select the liability option to include the payment amount for calculating the lease liability forthe payment term.

What Happens If You Enable Intercompany for PaymentTermsYou can select the Intercompany check box to mark the schedules as intercompany.


Field Description

Intercompany Select the intercompany option to mark the schedules as intercompany.

How You Create Payment TermsYou can edit the payment terms in the Payments: Summary tab.

In the Payments: Summary tab, you can view, add, or delete the following payment information under the PaymentTerms section:

Field Description

Line Number The payment line number is displayed.

Stub Select whether the payment is a stub or not.

Number of Payments Retain or change the number of payments.

Amount Retain or change the payment amount.

Line Start Date The payment line start date is displayed.

Line End Date The payment line end date is displayed.



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Field Description

First Payment Date Retain or change the first payment date.



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Chapter 5Create Options

17

5 Create Options

How You Select an OptionAfter adding the payment details in the Payments tab, you may enter the options details in the Options tab, if required.You can also add the details later as and when required

1. Click New to display the Create Option page.2. The following fields are available as part of the option creation:

Field Description

Payment Template Select the payment term template.

Supplier Select the supplier.

Supplier Site Select the supplier site.

Option Type Select the option type.

The valid options are Allowance, Construction Warranty, Expansion, Holdover, Purchase,Renewal, Early Termination, Adjustment, and Residual

Start Date Select the payment start date.

Amount Enter the payment amount.

Arrears Select arrears, if any payment arrears are due.

Payment Purpose Select the payment purpose.

Frequency Select the frequency of payment.

Number of Payments Enter the number of payments.

Currency Select the currency of payment.

3. Click Save and Close.4. In the Options: Summary tab, you can view or add the following payment information under the Overview

section:



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Field Description

Payment Template The payment template name is displayed.

Number The payment number is displayed.

Payment Purpose Retain or change the payment purpose.

Option Type The option type is displayed.

Option Status The option status is displayed.

Currency Retain or change the currency.

How You Select a Supplier for an OptionThe supplier section of the Options: Summary tab in the Lease page gives the supplier information and the paymentterm information.

In the Options: Summary tab, you can view or add the following payment information under the Supplier section:

Field Description

Supplier Retain or change the supplier name.

Supplier Site Retain or change the supplier site.

Payment Term Select the payment term.

How Schedule is Given For OptionsYou can schedule the options as per your requirement.

In the Option: Summary tab, you can view or add the following payment information under the Schedule section:



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Field Description

Start Date Retain or change the payment term start date.

Frequency Retain or change the payment frequency.

Arrears If there are arrears associated with the payment, the check box is selected.

What Happens If You Enable Right of Use for OptionsYou can select the Right-of-Use check box to include the payment amount, which calculates the right-of-use for theoption.

Use only this check box for capitalizing expenses into Right-of-Use without liability, such as Initial Direct Cost.

In the Options: Accounting tab, you can view or add the following payment information under the Compliance section:

Field Description

Right of Use Select the right-of-use option to include the payment amount for calculation of the right-of-use for the payment term.

What Happens If You Enable Liability for OptionsYou can select the liability check box to include the payment amount, which calculates the lease liability for the option.


Field Description

Liability Select the liability option to include the payment amount for the calculation of lease liability forthe option.

What Happens If You Enable Intercompany for OptionsYou can select the Intercompany check box to mark the schedules as intercompany.




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Field Description

Intercompany Select the intercompany option to mark the schedules as intercompany.

How You Create OptionsYou can edit the options in the Options: Summary tab.

In the Options: Summary tab, you can view, add, or delete the following payment information under the Optionssection:

Field Description

Line Number The payment line number is displayed.

Stub Select whether the payment is a stub or not.

Number of Payments Retain or change the number of payments.

Amount Retain or change the payment amount.

Line Start Date The payment line start date is displayed.

Line End Date The payment line end date is displayed.

First Payment Date Retain or change the first payment date.


Chapter 6Lease Operations

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6 Lease Operations

How You Use Seeded SLA IntegrationFor account creation using SLA integration for accounting events for two event classes: Lease Booking and LeaseExpense.

You are given the following seeded accounts for both payment terms and options:

Ledger Name Account Name Code Combination

Vision Operations (USA) Right Of Use 01-000-1294-0000-000

Vision Operations (USA) Lease Expense 01-000-7320-0000-000

Vision Operations (USA) Lease Liability 01-000-2220-0000-000

Vision Operations (USA) Accumulated Amortization 01-000-1292-0000-000

Vision Operations (USA) Amortizations 01-000-2240-0000-000

Vision Operations (USA) Interest Expense 01-000-7340-0000-000

Vision Operations (USA) Reserve 01-000-1245-0000-000

Seeded Subledger Accounting components for two Event Classes (with complete SLA AMB components) is given:

• Lease Booking

• Lease Expense

A new Journal Source: Lease Accounting and Journal Categories: Lease Booking and Lease Accrual are provided.

You are provided Journal Entry Rule Sets for Lease Booking and Lease Expense to SLAM: Standard Accrual.

You can use SLA to derive foreign exchange rates, which convert the payment currency schedules into functionalcurrency.



22

How You Add Attachments to a LeaseYou can add attachments to a lease from the Attachments tab.

You can have attachments of the following types:

• Text

• File

• URL

1. Select the type of attachment.2. Browse the file and click Attach.3. If the attachment type is Text or URL, you must enter those details in a text box.

Note: You can't delete an attachment once added.

How You Validate a LeaseOnce you have created the lease and provided the asset, payment term, and option information, you must validate thelease.

1. Click Actions.2. Click Validate.

You will receive the confirmation message on the validation tab of the lease.

Any warning or error in the lease information is updated automatically, or you have to make the changes before re-validating the lease manually.

The lease version is currently in Validated status while the lease status remains in Draft status.

How You Generate a Lease ScheduleOnce you have validated the lease, you must generate the schedules.

1. Click Actions.2. Click Generate Schedules.

You will receive the confirmation message on the generation of the schedules.

The schedules are displayed in the Schedules tab on the Lease page.

The following summary of periodical schedules are generated as it appears on the Lease Details report:

• Right-of-Use

• Lease Liability

• Interest Expense

• Amortization Expense



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• Lease Expense

• Cash Schedules

The Lease Details report is generated and attached to the lease in the Schedules tab during the finalization of theversion status. When the Lease Detail report is generated, the schedules are deleted.

The lease version is currently in Completed status while the lease status remains in Draft status.

Lease Liability and Right-of-Use are amortized between amortization start and end dates.

Currently, Daily Compounding Interest Method for Interest Calculation and Daily Amortization Method for Amortizationare available.

For daily calculations, you can define an irregular calendar such as 4-4-5.

Based on the number of dates in a period, daily amortization differs from period to period.

The annual discount rate, for example, 7%, is converted to daily compounding rate, as shown below, and used tocalculate of present values and daily interest.

7% annual rate = (1+Rate%)^(1/365 or 360)-1 = 0.00018538

How You Activate a LeaseYou must enable the Activate Lease Contract feature under the Lease Accounting functional area to which enables youto activate a lease contract..

Once you have generated the lease schedules, you must activate the lease.

1. Click Actions.2. Click Activate.

• A booking transaction with the Lease Booking accounting event is generated. Lease Booking is created as anunprocessed accounting event.

• In the background, Process Lease Actions, a scheduled ESS program, performs the following activities:

◦ Generate the Lease Details report. You can view the report in Oracle BI Publisher.

◦ Move the lease status to Booked.

• The scheduled Process Lease Accruals ESS program creates accruals for Interest and Amortization expenses forIFRS16, or ASC842, or both.

You will receive the confirmation message on the activation of the lease.

The lease version is currently in Booked status while the lease status is currently Active. You can't update the lease now.

Click Done to return to the Lease page.

Post Lease Activation Activities

You must generate lease expenses on the lease after the lease is activated. Generating lease expenses is typically aperiod end activity.



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You can schedule the ESS Job: Process Lease Expense Accruals, which will generate the transactions for lease expensesas follows:

• Amortization Expenses

• Interest Expenses

This ESS program has the following three parameters:

• Business Unit. This is mandatory

• Lease Number

• Period

The program generates the lease expenses for the business unit and all the accounting standards, if there are multipleledgers.

Create Accounting

You must run creating accounting with Lease Accounting as a source. The create accounting program generates theaccounting for the Lease Booking and Lease Expense transactions that were generated earlier.

View Accounting

You can navigate to any subledger like Payables and access the Review Journal Entries option to view the accounting forthe lease accounting transactions.

How You Search for Existing LeasesOnce you have created and activated a lease, you can search for it from the header section of the Leases page.

To search for the leases :

1. These fields are available as search parameters:

Field Description

Business Unit The search is based on the business unit.

Lease Number The search is based on the lease number.

Lessor The search is based on the lessor of the lease.

Lease Start Date The search is based on the start date of the lease.

Legal Entity The search is based on the legal entity of the lease.

Lease Name The search is based on the name of the lease.

Asset Type The search is based on the type of asset.



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Field Description

Accounting Classification The search is based on the account class.

Status The search is based on the lease status.

2. Click Search.3. The results are displayed in the body section of the Leases page.4. Click the lease number to open the lease details.5. Click Save to retain the search information.6. If needed, you can use Reset to clear the search information.

View Active Leases

You can't update active leases. You can view an active lease in a read-only mode by either clicking the lease number forthe search results or by selecting View from Actions in the lease search.



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