Real Property / Leases / Lease Portfolio / Extension for Lease Accounting
Record an Option for Early Termination that has been Exercised (or likely will be exercised)
Record lease modifications for an early termination that happens after a lease classification is already approved. This modification may happen after the organization has already reported the lease in one or more financial reports, meaning that any gain or loss on asset re-evaluation must be recalculated and declared.
Requirement
The gain or loss is declared all at once, on the effective date of the modification.
This procedure outlines recording a termination 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.
Procedure
- Invoke the Lease Portfolio Console, available on the Navigator at Real Property / Leases / Lease Portfolio.
- Create an option record representing the contractual right to early termination:
| Field | Value |
|---|---|
| Option Type | EARLY TERMINATION |
| Is reasonably certain? |
Yes |
| Area Involved | 100,000 sqft, for example |
| Date Exercising Applicable | 1/1/2019, for example. Use the Date Exercising Applicable, as this option may not have been exercised yet. When it is actually executed, you can complete Date Exercised. |
- Modify the existing lease RENT - BASE RENT Recurring Cost to have the new End Date of the termination.
| Field | Value |
|---|---|
| Cost Category | RENT - BASE RENT |
| Period | Month |
| End Date | Enter the new end date of the lease. |
| Amount - Expense | Retain the existing value. The cost change will be reflected in the new End Date. |
- If there are any allowances included as part of this termination 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.
- Load the Real Property / Leases / Lease Portfolio / Lease Classification Wizard.
- 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.
- Load the Real Property / Leases / Lease Portfolio / Generate Ledger Entries for Leases task.
- Note that the generation action includes entries for the gain or loss due to the re-evaluation of the ROU Asset.
-
When the organization actually 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.