Cloud Lease Assets

Cloud Lease Assets

June, 2020

Madhavi Godbole

Contents

Table of Contents

1. Required Set- ups: 2

a. Assets 2

b. Payables: 3

2. Create Leases 3

a. General Lease Information: 4

b. Financial Terms 6

c. Lease Term 6

d. Lease Classification 7

e. Payment Schedules 8

3. Leased Asset Additions 9

4. Lease Payment Invoices 10

5. Terminate Lease 11

1. Required Set- ups:
2. Assets

Setup steps to enable the lease feature for an asset book:

• Enable the Allow leased assets option for your asset book on the Create Book page
• Setup the leased asset category with Lease as the category type and assign it to your asset book. 

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2. Payables:

Setup steps to create the lease payment invoices and make payments:

• Assign at least one business unit as Payable Business Unit to your primary ledger
• Create at least one Supplier and site for each of your Lessors from the Suppliers Work Area in Oracle Procurement

2. Create Leases 

Use the Manage Leases page to manage all of your asset leases and perform the following activities:

• Create new leases 
• View pending lease transactions and post them
• View existing leases, asset information, and accounting entries Generate lease payment invoices
• Review lease payment invoices
• Transfer lease payment invoices to Payables 
• Change financial terms, such as the lease term or payment schedule Terminate leases 
• You can create leases in two ways

• Using the Create Lease page
• Using the Import Asset Leases file-based data import template

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1. General Lease Information:

The general lease information includes:

• Lease Number: A unique identifier to track the lease in Assets
• Lease Description: A general description of the lease
• Category: A lease category to be defaulted to -of-use assets.
• Contract Number: Enter lease contract number, if any and need not be unique
• Payables Business Unit: Select the Payables Business Unit responsible to make lease payments. 
• Lessor and Lessor Site: Select the Supplier and Site corresponding to each Lessor.
• Lease Start Date: Lease payment commencement date. 
• Payment Frequency: Choose an interval monthly, yearly, quarterly, and half-yearly.       
• Payment Option: Specify whether the lease payment is made in advance or arrears. 
• Generate Payment Invoices: Specify whether the lease payment invoices to be generated at the lease level (one invoice per lease) or asset level (one invoice for each right-of-use asset) 

Notes: 

1. You can generate lease payment invoices for a corporate book only.
   
2. When you choose not to generate invoices at all, you have to enter the invoices directly using the lease clearing account as invoice distribution account in your payables system.
   

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2. Financial Terms

Financial terms include the lease term, the lease classification, and the payment schedules. The financial terms are specific to a book to allow multiple representations of an asset lease. For example, it is possible classify a lease as an operating lease in a GAAP reporting book and a finance lease in an IFRS reporting book.

First, create the lease in the corporate book. Then, copy the lease to the associated tax book or other corporate books sharing the same primary ledger.

3. Lease Term

Assets calculates the lease term based on the information that you enter in the following fields: 

• Noncancelable Term: Number of months in which the lease cannot be cancelled by the lessee. Always included in lease term calculation.
• Extendable Term: Number of months the lease can be extended by the lessee. Included in the lease term only if you decide to extend the lease.
• Cancelable Term: Number of months the lessee has an option to terminate the lease. Included in the lease term only if you decide not to terminate the lease.
• Lessor Option Term: Number of months the lessor can extend or cancel the lease. Always included in lease term calculation.
• Exercise Options: Indicates whether you want to exercise the option to purchase, extend, or cancel the lease.

Lease term = Noncancelable Term + Lessor Option Term + Extendable Term (Only if you decide to extend the lease) + Cancelable Term (Only if you decide to cancel the lease)

4. Lease Classification

Leases are automatically classified as finance leases if any one of the following options is enabled. If none of the options are enabled, the lease is an operating lease.                   

• Major lease term: Lease term is 75 percent or more of the remaining economic life of the leased asset.
• Substantial present value: Present value of the lease payments is 90 percent or more of the fair value of the leased asset.
• Ownership transfer: Ownership of the leased asset is transferred to the lessee at the end of the lease term.
• Specialized asset: Leased asset has no alternative use to the lessor at the end of the lease term.

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5. Payment Schedules

The Amortization Schedules attributes are:

• Payment Date: Date when the payment needs to be made to the lessor.
• Interest Due Date: Date when interest on a lease liability is recognized. 
• Amount: Amount payable to the lessor.
• Number of Payments: For periodic lease payments, the number of payments is automatically calculated using the lease term, lease payment frequency, and lease payment option.
• Interest Rate: Enter only for the payment type Periodic Lease Payment. Only one interest rate is allowed for all payments and cannot have different rate for each payment type
• Exclude from Liability: Indicates whether the lease payment is included in the lease liability calculation.
• Exclude from Cost: Indicates whether the lease payment is included in the leased asset cost calculation.

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3. Leased Asset Additions

A leased asset addition line is created automatically when you create a lease using the Create Lease page. The cost, in service date, and category are defaulted from the lease. You can review and prepare these lines from the Additions Infotile on the Assets landing page or from the Assets tab on the Edit Lease page. 

Transactions on Leased Assets:

Oracle Assets has following restrictions for leased assets:

• Cost adjustment, source line adjustment, and Retirement transactions that change the cost of leased asset.
• Retroactive or backdated asset transfers.                    
• Reclass from leased category to owned or leasehold improvement category 
• Depreciation, Impairment and Revaluation for an operating lease asset

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4. Lease Payment Invoices

Generate Lease Payment Invoices process will generate invoices from the asset level amortization schedule and summarized based on invoice generation level option (asset level or lease level) and invoice date for various lease payment types.                                                     

5. Terminate Lease

Lessee can terminate a lease any time; start of the lease term, middle of lease term, or at the end of the lease term. Termination of a lease before the expiration of the lease term shall be accounted by the lessee by removing the right-of-use asset and the lease liability, with profit or loss recognized for the difference. When termination happen at the end of lease term the lease liability balance and net book value of the asset would have become zero and there is no gain or loss to be recognized. Gain or loss may arise only when the termination happens before the end of the lease term.