Special adjustments to leases are required when a company (or other entity) is acquired by another. In general, leases of the acquired company are restarted as of the acquisition date. Liability and asset are reset; sometimes the interest rate is simply updated to the current rate, but other times the liability and asset are entered as specific amounts (the asset may be adjusted to reflect goodwill, for instance). Acquisition accounting is the primary situation in which the asset and liability are unequal at the (updated) inception of a lease.
Setting up your leases to reflect acquisition accounting is a one- or two-step process:
1) Change the begin date of all leases. Open the Help menu, and while holding down the Ctrl key, choose Repair Database. Rather than the usual Repair options, you get a screen with other options:
Choose New Begin Date; enter the desired date for the acquisition.
Unless you check the box "Change leases that start in the future?" any leases with a begin date later than you specify are left unchanged.
Choose “Immediately classify” if you do not need to upload values for the leases, but wish to use the existing rate entered for the leases.
ASC 805-20-25-28B allows making a policy election by class of asset (which is to remain for all acqusitions done by the entity) to treat leases having a remaining term of 12 months or less to be treated as Short Term. Check the box to allow EZLease to automatically recognize leases as Short Term. (Unfortunately, there is no way to enable Short Term for only specific groups of leases.) IFRS 16 provides the same option (found in the newly added paragraph 28B of IFRS 3), with no requirement that the election be made by class of asset.
2) Use an upload spreadsheet to specify the liability, ROU asset, and/or discount rate. You may not specify both the liability and the discount rate. The upload file must have the following format:
Column A: Lease number
Column B: New Liability
Column C: New ROU Asset
Column D: New Discount Rate
A sample file is placed in the application folder of EZLease (usually C:\Program Files (x86)\LeaseAccelerator\EZLease), named EZLease acquisition upload template.xls.
To load the spreadsheet, open the Help menu, and while holding down the Ctrl key, choose Repair Database, then click on Acquisition Upload.
The asset can be entered with or without a sign. If entered without a sign, the value entered is treated as the new ROU asset value. If entered with a positive or negative sign, the value entered is treated as the adjustment to the liability, so that +2000 means the ROU asset should be 2000 more than the liability, or -3000 means 3000 less. If a negative value would make the ROU asset negative, EZLease returns an error.
When entered, the new liability is stored as the Fair Value of Building/Equipment (unless the lease previously had Fair Value only for land, in which case the liability is stored thre); new ROU asset is stored as the ROU asset, and the difference between the initial liability (whether specified or calculated) and the asset is entered as the Asset Adjustment; new discount rate is stored as the discount rate.