Main Data Tab

Field

Definition/Format

Depreciation Method

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.

Depreciation Life

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.

Economic Life

Required. Enter the estimated economic life of the asset in months. If the lease term is 75% or more of the economic life, the lease is finance (unless the leased asset is in the last 25% of its economic life at the inception of the lease). The Economic Life used is typically the period over which you would depreciate the same type of asset if it were owned instead of leased. If the lease is land only, you may leave this field blank, since land is normally considered to have infinite life.

If the lease transfers ownership or has a reasonably certain purchase option, the lease is depreciated over the Economic Life, rather than over the lease term. If the Economic Life is longer than the lease term, at expiration you will have an unamortized balance in your asset account, which typically is transferred to your owned asset account. It can be tracked using the Depreciation over Economic Life report.

You may enter the economic life directly, or 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.

Annual Land Rent Portion

Under FAS 13, if you enter a combined land and building lease, for which the Fair Value of the land is 25% or more of the total Fair Value of the lease (i.e., 33.3% or more of the Fair Value of the building), and the building portion of the lease is capital (finance), then the land portion is operating (unless the lease has ownership transfer or a reasonably certain purchase option). The portion of the annual rent applied to the land is equal to the Fair Value of the Land multiplied by the Incremental Borrowing Rate. This is automatically divided into the number of rent payments per year for each rent step.

Under ASC 842, a lease with a finance building portion and a land must be entered as two separate records, because the land is capitalized as an operating lease; EZLease cannot track both parts of a partially finance, partially capitalized operating lease. IFRS 16/GASB 87 treat all leases as fully finance, so the land rent portion is not relevant.

Monthly/Daily Level Operating Rent

On operating leases that have rent leveling, the periodic level rent accrual amount is displayed. The period length is the one chosen for the system option Accrual calculation method (typically Monthly for users with calendar month-based fiscal periods, Daily for users with fiscal periods that are day- or week-based). If a lease does not have operating rent leveling (either because the lease is finance, or it has the same rent for the entire life of the lease, or rent leveling has been turned off), zero is shown. This value is not shown when you choose ASC 842/IFRS 16/ GASB 87 classification display. 

This displays only for U.S. GAAP users when you choose ASC 842 classification for the lease. For an operating lease, the single lease cost (which is equal for the entire life of the lease, unless the lease is revised) is shown. The period length is the one chosen for the system option Accrual calculation method (typically Monthly for users with calendar month-based fiscal periods, Daily for users with fiscal periods that are day- or week-based). If the lease is finance, zero is shown.

The lease cost is a level amortization of all rent paid, plus initial direct costs, minus lease incentives.

Total Rent Payments

A sum of all minimum rent payments, finance, operating, executory, and non-lease components. Variable lease payments (contingent rents) are not included, nor are rents for non-recognized option periods.

Combined Rent

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.

Specified Right-of-Use Asset

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 Inception 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.

Right-of-Use Asset

If the lease is finance (or ASC 842 operating), once you save the lease, the Right- of-Use asset is calculated and displayed.

When a finance lease is revised, the Right-of-Use asset is recalculated, even if the original Right-of-Use asset was specified. (Both the asset and liability increase or decrease by the change in the present value of the remaining rent.) Each revision of a lease will show what the Right-of-Use asset was while that revision was in effect.

Guaranteed Residual

Optional; required if you have a Reasonably Certain Purchase Option. If you guarantee a specific value of the property at the end of the lease, enter that guarantee amount. If the lease contains a reasonably certain purchase option, enter that amount. This amount is included in the minimum lease payments, treated as a payment due the last day of the lease.

In many cases, you do not actually make a payment on a guaranteed residual, because the Lessor is able to sell the asset for an amount equal to or greater than the guarantee. If the residual is guaranteed, however, you must enter it for the full amount, not reduced by the amount expected to be covered. In such cases, for FAS 13 accounting, debit cash for the amount of the guaranteed residual (to offset the credit to cash generated by EZLease’s residual payment) and credit your termination gain account. You may want to set up a salvage value (see below) equal to the guaranteed residual to reduce your expense recognition over the life of the lease and eliminate the anticipated termination gain.

For ASC 842 reporting, the guaranteed residual is used to determine the present value of the rents for classification purposes. However, ASC 842/IFRS 16/GASB 87 capitalize only the portion of the guaranteed residual expected to be paid (the next field).

Expected Guaranteed Residual Payment

Under ASC 842/IFRS 16/GASB 87, only the portion of a guaranteed residual that the Lessee expects to actually pay is included in the capitalized value of the lease (either finance or operating for U.S. entities). If there is a material change in the expected payment, the lease should be revised to reflect the change.

Salvage Value

Optional. Enter the amount of the asset which should not be depreciated. This is typically used in conjunction with the Guaranteed Residual, in the same amount. When a lease is set up with an equal Guaranteed Residual and Salvage value, the asset and liability will normally be equal at the end of the lease term, eliminating the termination gain that would otherwise occur. Note that if the lease has an ownership transfer or reasonably certain purchase option, depreciation is over the Economic Life, not the lease term; if the economic life is longer than the lease term, the asset will not be fully depreciated at expiration even without a Salvage value.

By itself, entering a Salvage value means that when the lease expires, its net asset (Right-of-Use asset less accumulated depreciation) is that amount. At expiration, a termination loss is recognized for the removal of the unamortized asset value. If you anticipate a termination gain from a Guaranteed Residual that you do not expect to actually pay (in part or in full), the Salvage can balance that out.

This is not normally needed for ASC 842/IFRS 16/GASB 87 leases, since only the portion of the guaranteed residual you expect to pay is included in the liability.

Rent Steps

Gross Rent is the entire rent payment due for each payment period.

Executory Cost are costs such as insurance, maintenance, and taxes incurred for leased property, whether paid by the Lessor or Lessee. 

Non-lease Components are amounts included in the rent paid to the lessor which transfer to the lessee a good or service separate from the underlying leased asset.
Net Rent is gross rent plus executory costs and non-lease components.

Step Start is the day after the previous step end.

Step End is the day the rent step ends.
Pym Frequency is how often the rent payments are made. The default is Monthly. Options are Daily, Weekly, Monthly, Quarterly, Semiannually, Yearly, and OneTime.