Real Property / Leases / Lease Portfolio / Extension for Lease Accounting

Record an Option for Improvement that has been Exercised (or will likely be exercised)

Record an option for an improvement that is reasonably certain to be exercised or that has been exercised

This procedure outlines recording an improvement option that meets one of the following conditions:

• is reasonably certain to be exercised in the future
• has been exercised when it was not previously marked as "Is reasonably certain?"

The procedures for the two use cases are identical. The only difference is that in the second case, the Lease Manager exports lease costs to the general ledger, the export will contain extra line items representing a gain or loss.

Requirement

For finance leases, when calculating options likely to be exercised, the option is added to the ROU Asset and lease liability and amortized over the life of the lease.

If the value of the ROU Asset and liability was previously reported on the books for previous years or quarters, calculate the gain or loss resulting from this asset re-evaluation.

Procedure

1. Follow the procedure in To Record an Option for Tenant Improvement Costs.

• If there are any tenant improvement allowances included as part of this expansion option, enter them as separate costs with a Cost Category of LEASE - IMPROVEMENTS. Use Amount - Income rather than Amount - Expense for the cost.
• If there are other fees or costs that are permitted to be amortized over the entire lease, enter them in separate costs with Cost Category LEASE - OTHER AMORTIZED COSTS.

2. Load the Real Property / Leases / Lease Portfolio / Lease Classification Wizard.
3. Work through the questions, changing the options from Pending and moving through the various tabs. The program saves the lease classification data, recalculates the ROU Asset and lease liability, and regenerates a new amortization schedule.
4. Load the Real Property / Leases / Lease Portfolio / Generate Ledger Entries for Leases task.
5. Note that the generation action includes entries for the gain or loss due to the re-evaluation of the ROU Asset.

6. When the organization actual executes the option, the Lease Administrator additionally:

   • Edits the Date Exercised (above, the classification uses the Date Exercising Applicable).

Outcome

The Audit Log shows any changes to the options.

The Audit Log shows the new values of the Lease, as of the Lease Manager's approval.

The Options table shows the modifications and the effective dates.

The amortization schedule includes:

• a "current" schedule representing the new amortization information.
• a set of "Archived" schedules representing previous amortizations.

It is the difference between the two schedules that the program uses to calculate the gain or loss.