Additional Data Tab

Enter here landlord incentives for construction or leasehold improvements (payments made to you or on your behalf which should be amortized over the life of the lease). Enter such incentives as a negative number.

ASC 842/IFRS 16/GASB 87 require lease incentives to treated as a reduction of the ROU asset. For an operating lease, you can see the amortization of the lease incentives by running the Operating Leases Verification report, which breaks out the individual components of the accumulated amortization. 

“Incremental costs of a lease that would not have been incurred if the lease had not been obtained.” [842-10-20] This specifically excludes overhead costs and legal fees that would be paid if the lease was prepared but not completed [842-10-3010]. Costs envisioned include commissions and incentive payments to terminate another lease [842-10-30-9].

If IDC is entered for a lease that starts before the new standard effective date, IDC is first recognized as of the transition date.

Any guarantee by the Lessee or any party related to the Lessee (see related parties) of the residual value at the expiration of the lease term, whether or not payment of the guarantee constitutes a purchase of the leased property. When the Lessor has the right to require the Lessee to purchase the property at termination of the lease for a certain or determinable amount, that amount shall be considered a Lessee guarantee. When the Lessee agrees to make up any deficiency below a stated amount in the Lessor’s realization of the residual value, the [guaranteed residual] … shall be the stated amount, rather than an estimate of the deficiency to be made up.

Expected Guaranteed Residual

This is the Lessor’s expected value of the asset at the end of the lease and is often not known by the Lessee. If known, enter this to have EZLease calculate the Implicit Rate for the lease. If you have a combined land and building lease, enter the residual for the building only. Under FAS 13, the lower of the Implicit and Incremental Rates is used for the ¶7(d) present value test when a lease is classified. All other standards use the implicit rate if known.

Lessor's Initial Direct Costs

Optional; For ASC 842/IFRS 16/GASB 87, the lessor's initial direct costs must be known to determine the implicit rate for the lease, which is defined as the rate that makes the present value of the rent plus unguaranteed residual equal to the fair value of the underlying asset plus the initial direct costs.

If this is shown as "Unknown," no implicit rate is calculated. If you know the amount of lessor IDC is zero, you should enter an explicit 0, rather than leave it blank.

Required. For finance leases, the method for depreciating the asset. (This selection is ignored for ASC 842 capitalized operating leases, as the depreciation methodology is defined in the standard as tied to the amortization of the liability.) The following methods are available:

Straight line (default) - An equal amount of depreciation is taken for every day or month of the depreciation life, depending on whether you have selected daily or monthly accrual calculations in System Options.

Straight Line full month - A full month of depreciation is recorded in the first calendar month a lease is active if the begin date is the 1st to 15th of a month; otherwise, depreciation starts at the beginning of the following month. If the end date of the lease is the 1st to 14th of a month, depreciation ends at the end of the prior month; otherwise, a full month of depreciation is taken for the final month.

SL/Half year convention - In the first and last fiscal years, a half year of straight- line depreciation. In the middle years of the lease, depreciation is taken at a normal rate. The half year of depreciation is taken even if the lease is active for less than half the year, so depreciation in the first and last years on a per-month basis could be more or less than the middle years. (Thus, a lease that starts at the beginning of the seventh month and ends at the end of the sixth month of a fiscal year will have identical depreciation using this method or standard straight line.)

Declining balance - 150% and 200% versions are offered, meaning that the starting depreciation is, respectively, 1.5 or 2 times straight-line depreciation. For the first fiscal year, a mid-quarter convention is used (for example, if a lease starts at any point in the fiscal second quarter, 7.5 months’ worth of depreciation is spread over the active part of the fiscal year). All declining balance routines convert to straight line at the optimal year, and then run straight line over the remaining life of the lease. This methodology is essentially identical to that used by the IRS for MACRS depreciation. The results will match the IRS tables only if the depreciation life length exactly matches a length listed by the IRS (see IRS Publication 946, How to Depreciate Property, available at www.irs.gov).

No depreciation - The asset will remain undepreciated for the life of the lease. This is primarily intended for land leases are finance because they include an ownership transfer or a reasonably certain purchase option.

See System Options for selections that affect the calculation of depreciation (monthly or daily, fiscal year end). System Options also allows you to set the default depreciation method for your leases.

Required. The length of time over which a finance lease is depreciated. A finance lease should be depreciated over its economic life if it has an ownership transfer or reasonably certain purchase option at the end of the lease. Otherwise, it should be depreciated over its lease term. EZLease sets this automatically based on whether or not you set the Ownership Transfer or Reasonably Certain Purchase Option checkboxes, but you can override the choice if you need to. The most common reason would be a lease with ownership transfer with a lease term longer than its standard economic life, in which case you would normally extend the depreciation to cover the entire time the lease is active.

Optional; A transfer transaction is intended to permit you to stop recognizing a lease’s activity in one department or account and start recognizing it in a new entity, while leaving prior activity untouched. You might use a user-defined field, asset class, financial group, or an account number to specify where activity for a lease should be booked, but now the lease's responsibility is moved someplace new.

You can enter an amount to be added to or subtracted from the Right-of-Use asset at initial setup. This is most useful for setting up a different asset and liability when taking over a lease as part of a business combination, such as to recognize favorable or unfavorable lease terms. The adjustment is amortized over the depreciation life of the lease (lease term or economic life).

Salvage Value

Under ASC 842, IFRS 16, and GASB 87, a Salvage value is not normally needed and rarely used, since you only capitalize the portion of the guaranteed residual which you expect to pay (which may be zero).

It was useful for ASC 840, because ASC 840 didn't have the "expected guaranteed residual" option, so salvage value was used to reduce the amount of depreciation expense taken because the asset value included the (inflated) liability with the guaranteed residual when that wasn't expected to be paid (in full or in part).

Deferred Rent Rollover

Optional; If you early terminate an operating lease with rent leveling, there will be a termination gain or loss. If the terminated lease is being replaced by a new, related lease, you may want to roll over the gain/loss into the new lease, rather than immediately recognizing it. Enter a rollover of a deferred liability (a gain, the most common situation) as a negative and a rollover of a deferred asset (a loss) as a positive; an inverse loss or gain will be recognized at the start of the new lease, balancing the original lease’s gain or loss.

This can also be used to amortize landlord incentives for construction or leasehold improvements (payments made to you or on your behalf which should be amortized over the life of the lease). Enter such incentives as a negative number.

If the asset was previously in service, you may enter an in-service date and the original economic life, in which case EZLease will calculate the remaining life, and automatically determine if the lease starts in the last 25% of the asset's economic life.

The original economic life of the asset. This is used in tandem with Asset in Service Date; when entered, EZLease will calculate the remaining life, and automatically determine if the lease starts in the last 25% of the asset's economic life.

You can link two leases together so that you can see the rent combined. This is most commonly used for a lease which has land and building components, where the land is treated as operating and the building as finance. Since ASC 842 requires operating and finance leases to be reported separately, the two pieces must be separated. If you link this lease to its mate, you can view the combined rent for both by clicking on the Combined Rent button. You can optionally combine the rents for a Listing report or Current Rent report on the Special report options window.

This button is only active if this is a linked lease (see above). Clicking on it shows the rent for the lease displayed and its linked lease.

If the rent schedule (when the rents change, or the payment frequency) is inconsistent for two linked leases, it may be impossible to display a combined rent report.

Ownership Transfer

Required. Check the box if the lease agreement conveys ownership to you at the end of the lease term. If you check this box, the lease is finance (and if not a land- only lease, is depreciated over its economic life). If you user-classify the lease operating, this box cannot be checked. For GASB 87, a lease with ownership transfer is considered a financing, rather than a lease, and is to be reported with owned assets.

Required. In ASC 842/IFRS 16, whether the Lessee has an option to purchase the underlying asset that the Lessee is reasonably certain to exercise, not limited to reasons of option price.

In FAS 13, this was called a bargain purchase option, which was defined as “A provision allowing the Lessee, at [the Lessee’s] option, to purchase the leased property for a price that is sufficiently lower than the expected fair value of the property at the date the option becomes exercisable that exercise of the option appears, at the inception of the lease, to be reasonably assured.”

If such a provision exists in the lease, check the box on the lease input form. If this box is checked, you must enter the purchase price in the Guaranteed Residual field (and if the lease starts under ASC 842/IFRS 16/GASB 87, enter the same amount in the Expected Guaranteed Residual Payment). Any lease with a reasonably certain purchase option is capital/finance [842-10-25-2b].

Required. If you are renewing a lease, or leasing a used asset, and previous use of the asset has covered 75% or more of its original economic life, check the box. The lease is then operating unless the Ownership Transfer or Reasonably Certain Purchase Option boxes are checked.

This box is set automatically for an extension of a finance lease when it is considered operating under the lease accounting rules, but a straight application of the rules without considering the original lease would make the extension lease seem to be finance.

Under ASC 842/IFRS 16/GASB 87, if the lease term (including recognized options for ASC 842, or all options for IFRS 16/GASB 87) is 12 months or less, the lease is considered Short Term, and is treated like a FAS 13 operating lease: rent expense recognized straight line over the lease life, no recognition on the balance sheet, except for deferred rent due to leveling. (For GASB 87, rent leveling is not required.) EZLease sets this automatically.

IFRS users need not recognize as finance leases contracts for low-value assets. According to the Basis for Conclusions of IFRS 16, “the IASB had in mind leases of underlying assets with a value, when new, in the order of magnitude of US$5,000 or less.” Specify your threshold in System Options, New Standard tab. If the combined land and building fair values are less than the threshold, the low-value asset box is automatically checked, but you may change it if appropriate. Note that the criterion is intended to apply to the value of an asset when new. If the lease has an original economic life greater than the current economic life, EZLease prompts you to confirm that the asset should be considered of low value.

Low-value asset leases are treated like IAS 17 operating leases, with rent recognized on a straight-line basis.

ASC 842 and GASB 87 users can choose in System Options to use the Low Value classification to track immaterial leases.

Payments in Advance

Required. Check this box (the default) if the rental payment is made at the beginning of each payment period (the usual situation); uncheck the box if the payment is made at the end of the period (payments in arrears, much less common but used for some leases, primarily real estate).

Required; this field is ignored if the lease is classified finance (unless it is part operating and has a rent holiday; see below). Under normal circumstances, if differing amounts of rent are paid at different times during an operating lease, the total rent is accrued and expensed on a straight-line basis over the life of the lease, and a deferred asset or liability is carried on the balance sheet for the difference between the rent expense and the actual cash paid. If this lease should be handled the normal way, check this box (which is the default).

However, scheduled rent increases can be accrued and expensed as paid if this “is more representative of the time pattern in which use benefit is derived from the leased property,” for instance because the increases reflect availability of more property for you to use. (Note that according to FASB Technical Bulletin 88-1, if “the Lessee takes possession of or controls the physical use of the property at the beginning of the lease term, all rental payments, including the escalated rents, should be recognized as rental expense … on a straight-line basis” [FTB 88-1, even if not all the property is being used at first.) If you do not want to level the rents (if they are operating), uncheck the box.

A lease that is part finance and part operating because it is a combined land and building lease does not normally have rent leveling, because the operating rent applied to the land is constant over the life of the lease (see Annual Land Rent Portion below). However, if there is a rent holiday or a highly concessionary rent period when the rent paid is less than the calculated land rent, rent leveling is calculated (if this field is checked).

If you are a government entity, rent does not need to be leveled “when the pattern of the payment requirements, including the increases, is systematic and rational.” Increases due to anticipated increases in costs (inflation) or appreciation in property values, for instance, are considered systematic and rational. In such cases, uncheck the box. However, if some of the rental payments are artificially low (for example, a rent holiday offered as an inducement or to reduce short-term cash flow requirements), rent should be leveled over the life of the lease. See Appendix E, Governmental Accounting, for more details.

In almost all cases, you should let EZLease determine the Right-of-Use asset value for finance leases. For FAS 13/IAS 17, this is normally the same as the original liability (the present value of the rents). For ASC 842/IFRS 16/GASB 87, the asset value is the original liability plus any rent paid on or before the lease inception, plus initial direct costs, minus lease incentives. However, in certain business combinations (those treated as an acquisition), the Right-of-Use asset for the lease is assigned, and is completely independent of the liability. In that case, check this box and enter the appropriate Right-of-Use asset. We recommend that you not use this for ordinary finance leases, even if you think you know the appropriate asset value; instead, let EZLease calculate it as part of the classification process.

Instead of specifying the asset value, you can enter an adjustment to the asset on the Additional Data tab.

For an ASC 842 operating lease, entering a specified asset causes the asset to be depreciated straight-line, rather than the liability-based depreciation normally used for capitalized operating leases under ASC 842. This is intended primarily for use when an asset is impaired.

If you have chosen the cumulative catch-up transition option (where operating leases are converted to finance as of the implementation date of IFRS 16), you may choose, on a lease-by-lease basis, for IAS 17 operating leases, to calculate the asset at the implementation date as if the lease had been finance from inception.

This normally results in a lower asset than liability at transition, with the difference an immediate charge to retained earnings (shown in EZLease as an addition loss). This is not relevant if you have chosen full retrospective application of IFRS 16.

Transfer transaction

A transfer transaction is intended to permit you to stop recognizing a lease’s activity in one department or account and start recognizing it in a new entity, while leaving prior activity untouched. You might use a user-defined field, asset class, financial group, or an account number to specify where activity for a lease should be booked, but now the lease’s responsibility is moved someplace new.

To accomplish this transaction, transfer terminate the original lease in the current reporting period (enter an early termination type of Transfer and specify the date). Next, copy the lease (Lease menu/Copy), creating a new lease (typically with a similar number, so the two leases are listed next to each other in reports). All of the financial information on the lease remains the same (begin & end date, rents, etc.). Change the appropriate code on the lease to indicate the new group it belongs to. Then check the Transfer Addition box on the Transfer/MTM tab; for the Effective Date, enter the same date as the early termination date on the original lease.

Change the booking date to a date in the current reporting period.

The new lease will add the asset and liability that the old lease had at the date of termination and will carry on from that point. The old lease will typically have a termination gain; the new lease will have a loss of an inverse amount. (In the rare event of a termination loss, there will be an addition gain.)

Underlying Asset Scope

If a lease is revised, the change may reflect a change in the underlying asset. For instance, the square feet leased in a building may change (becoming larger or smaller).

If the scope increases, and the increased rent is commensurate with the standalone price for the additional right of use, the increase is treated as a new agreement. [842-10-25-8]

If the scope increases, and the increased rent is not commensurate with the standalone price, the lease must be broken into two components reflecting the original asset and the new asset, with the rent allocated proportionally to each. [842-10-25-11, 842-10-55-168]

If the scope decreases, the asset is reduced proportionately, and a gain or loss recognized for the difference between the change in asset and change in liability. [842-10-25-13, 842-10-55-177] You can enter a percentage by which the asset is reduced in the Reduced Asset Percentage (optional according to 842-10-55-183, required for IFRS 16). Otherwise, EZLease calculates the percentage to reduce the right-of-use asset based on the percentage change in lease liability, as described in 842-10-55-181.

Date of First Change

Revised Fair Value as of Inception

Usually the fair value entered in the revision box is the fair value as of the revision date. However, sometimes it is desirable to restate the fair value at inception, to cause the lease to be recalculated (particularly the implicit rate) using the corrected value. Check this box to cause it to be so treated.