Product Information
Lease Accounting for Lessees with SAP Business ByDesign based on IFRS 16 / ASC 842
The objective of this blog post is to introduce lease accounting for lessees with SAP Business ByDesign based on IFRS 16 / ASC 842.
The International Accounting Standards Board (IASB) and the Financial Accounting Standards Board (FASB) issued in 2016 a standard related to lease accounting: IFRS 16 and ASC 842. It affects companies that report under IFRS or US GAAP and are involved in leasing. It requires lessees to recognize assets and liabilities for most of their leases.
IFRS 16, Leases is effective for fiscal years beginning on or after January 1, 2019. The US counterpart ASC 842, Leases is effective for public business entities for fiscal years beginning after December 15, 2018 and becomes effective for fiscal years beginning after December 15, 2019 for all other entities.
For those not yet familiar with the accounting standards, we recommend acquainting yourself with the topic now. As a starting point, we have chosen some materials from different authors. You are welcome to share your sources as a comment to this blog.
- Grant Thornton: Insights into IFRS 16
- PwC: Lease Accounting Guide (ASC 842)
- KPMG: IFRS 16 – Leases handbook
- Deloitte: The Deloitte roadmap to applying ASC 842
The new feature consists of lease contract creation, valuation, and automatic right-of-use asset creation for leased objects and lease contract postings. Optional an automatic supplier invoice creation based on lease contracts is available.
Lease contract creation
Before you can create a lease contract, you need to scope Lease Accounting in your solution.
You can create a lease contract in the Lease Contract Management work center. Select the Lease Contract view and click on New.
In the General tab enter all required fields. The interest rate entered under Valuation is used to discount the outstanding payments and calculate the present value.
If the lease contract contains renewals, you can define them in the Options tab.
Note: Only enter renewals which are highly probable to be executed as they extend the contract end date and therefore influence the valuation.
In the Leased Objects tab, you can enter one or more objects that belong to this lease contract. You need to define an External Reference ID which is unique (e.g. a license plate) and the Object Type which is used for the right-of-use asset class and account determination. By the Relevance you can specify per leased object and set of books if an exemption is applied according to IFRS 16 (short-term lease or low value asset) and therefore post it as an Expense, or classify it is an Operating Lease or Finance Lease according to ASC 842. For each leased object a corresponding right-of-use asset will be created.
You need to define at least one lease installment under Conditions for a leased object. Lease Installment and Service Charge are recurrent payments. All other condition types, such as Initial Cost, IFRS Incentive and Penalty Payment are one-time payments.
In the Organizational Assignments you can assign each leased object either to a cost center or a project task. This assignment is copied over to the corresponding right-of-use asset.
When you entered all data, you can check the lease contract. If the check is successful, you can valuate it. Click on Actions and select Valuate. The valuation generates the Payment Schedule Lines and Valuation Cash Flow. You can view them by clicking on Reports and selecting them.
The Lease Contract Payment Schedule Lines report provides an overview of all recurring lease payments (lease installments or service charges) by due date.
The Lease Contract Valuation Cash Flow report provides an overview of all calculated valuation figures such as the net present value, the opening and ending balance of the right-of-use asset and the lease liability, the depreciation, the interest and the lease expense for each leased object. The amounts shown in this report are the basis for the Lease Contract Posting Run.
Calculations for the net present value, interest and depreciation is done daily. This means the number of days used to calculate depreciation and interest amounts for example for February are 28 (29), for April are 30 and for May are 31. The formula for discounting and interest calculation uses compound interest (exponential interest calculation). If rounding differences appear at the ending balance, the difference is added to depreciation or interest on the last due date.
This simple example shall explain the calculation a bit more in detail. The contract start date is 01.03.2018 and it ends after one year on 28.02.2019. The monthly lease installment is 1.000 Euro and paid at the last day of each month. The interest rate for discounting is 1%.
Present value calculation
| Due Date | Days | act/360 | Interest rate | Discount factor | Payment | Present value |
| 31.03.2018 | 30 | 0,0833 | 0,01000 | 0,999171149 | 1.000,00 | 999,17 |
| 30.04.2018 | 60 | 0,1667 | 0,01000 | 0,998342986 | 1.000,00 | 998,34 |
| 31.05.2018 | 91 | 0,2528 | 0,01000 | 0,997487938 | 1.000,00 | 997,49 |
| 30.06.2018 | 121 | 0,3361 | 0,01000 | 0,99666117 | 1.000,00 | 996,66 |
| 31.07.2018 | 152 | 0,4222 | 0,01000 | 0,995807562 | 1.000,00 | 995,81 |
| 31.08.2018 | 183 | 0,5083 | 0,01000 | 0,994954686 | 1.000,00 | 994,95 |
| 30.09.2018 | 213 | 0,5917 | 0,01000 | 0,994130017 | 1.000,00 | 994,13 |
| 31.10.2018 | 244 | 0,6778 | 0,01000 | 0,993278577 | 1.000,00 | 993,28 |
| 30.11.2018 | 274 | 0,7611 | 0,01000 | 0,992455298 | 1.000,00 | 992,46 |
| 31.12.2018 | 305 | 0,8472 | 0,01000 | 0,991605293 | 1.000,00 | 991,61 |
| 31.01.2019 | 336 | 0,9333 | 0,01000 | 0,990756015 | 1.000,00 | 990,76 |
| 28.02.2019 | 364 | 1,0111 | 0,01000 | 0,989989551 | 1.000,00 | 989,99 |
| 11.934,65 |
Valuation Cash Flow
| Date | Days | Month | Year | RoU Asset | ||
| Opening balance | Depreciation | Ending balance | ||||
| 01.03.2018 | 3 | 2018 | 11.934,65 | 11.934,65 | ||
| 31.03.2018 | 30 | 11.934,65 | 983,63 | 10.951,02 | ||
| 30.04.2018 | 30 | 4 | 10.951,02 | 983,63 | 9.967,39 | |
| 31.05.2018 | 31 | 5 | 9.967,39 | 1.016,41 | 8.950,98 | |
| 30.06.2018 | 30 | 6 | 8.950,98 | 983,63 | 7.967,35 | |
| 31.07.2018 | 31 | 7 | 7.967,35 | 1.016,41 | 6.950,94 | |
| 31.08.2018 | 31 | 8 | 6.950,94 | 1.016,41 | 5.934,53 | |
| 30.09.2018 | 30 | 9 | 5.934,53 | 983,63 | 4.950,90 | |
| 31.10.2018 | 31 | 10 | 4.950,90 | 1.016,41 | 3.934,49 | |
| 30.11.2018 | 30 | 11 | 3.934,49 | 983,63 | 2.950,86 | |
| 31.12.2018 | 31 | 12 | 2.950,86 | 1.016,41 | 1.934,45 | |
| 31.01.2019 | 31 | 1 | 2019 | 1.934,45 | 1.016,41 | 918,04 |
| 28.02.2019 | 28 | 2 | 918,04 | 918,04 | ||
| Date | Days | Month | Year | Lease Liability | ||||
| Opening balance | Clearing amount | Interest expense | Repayment | Ending balance | ||||
| 01.03.2018 | 3 | 2018 | 11.934,65 | 11.934,65 | ||||
| 31.03.2018 | 30 | 11.934,65 | 1.000,00 | 9,90 | 990,10 | 10.944,55 | ||
| 30.04.2018 | 30 | 4 | 10.944,55 | 1.000,00 | 9,08 | 990,92 | 9.953,63 | |
| 31.05.2018 | 31 | 5 | 9.953,63 | 1.000,00 | 8,53 | 991,47 | 8.962,16 | |
| 30.06.2018 | 30 | 6 | 8.962,16 | 1.000,00 | 7,43 | 992,57 | 7.969,59 | |
| 31.07.2018 | 31 | 7 | 7.969,59 | 1.000,00 | 6,83 | 993,17 | 6.976,42 | |
| 31.08.2018 | 31 | 8 | 6.976,42 | 1.000,00 | 5,98 | 994,02 | 5.982,40 | |
| 30.09.2018 | 30 | 9 | 5.982,40 | 1.000,00 | 4,96 | 995,04 | 4.987,36 | |
| 31.10.2018 | 31 | 10 | 4.987,36 | 1.000,00 | 4,28 | 995,72 | 3.991,64 | |
| 30.11.2018 | 30 | 11 | 3.991,64 | 1.000,00 | 3,31 | 996,69 | 2.994,95 | |
| 31.12.2018 | 31 | 12 | 2.994,95 | 1.000,00 | 2,57 | 997,43 | 1.997,52 | |
| 31.01.2019 | 31 | 1 | 2019 | 1.997,52 | 1.000,00 | 1,71 | 998,29 | 999,23 |
| 28.02.2019 | 28 | 2 | 999,23 | 1.000,00 | 0,77 | 999,23 | ||
Right-of-use asset creation
When you checked the Payment Schedule Lines and Valuation Cash Flow you can release the lease contract. Click on Actions and select Release. This action will automatically create a right-of-use asset per leased object and enables you to generate postings for the lease contract and object(s). You can navigate from the leased object to the right-of-use asset.
The right-of-use asset has the new depreciation method LEAS assigned. This depreciation method gets the depreciation from the lease contract based on the valuation cash flow. The useful life is calculated based on the contract start and end date.
Lease contract posting run
You can create a lease contract posting run in the Lease Contract Management work center. Select the Lease Contract Posting Run view and click on New and select Lease Contract Posting Run.
You can schedule the lease contract posting run to ensure that all related postings will be generated regularly. Or you can select lease contracts and generate all postings up to a given key date. If you select a key date type, the schedule action is disabled. In this case click Start Now to execute the run.
When you display the execution log you can find in tab Processed Successfully which postings were generated. The postings are separated by Initiation and Clearing postings. Initiation postings will be generated for the initial measurement (opening balances) at the contract start date, revaluations at the effective date of modification based on contract modifications or the right-of-use asset retirement at the contract end date.
Execution log for IFRS: Initiation
The right-of-use asset is capitalized, and the lease liability is also posted. In addition, Initial Direct Cost increase the acquisition cost of the right-of-use asset. The offset account for initial direct cost is the clearing account for lease contracts which is also used when assigning the corresponding supplier invoice to the lease contract.
Execution log for German GAAP: Initiation
For German GAAP no initiation postings are generated, because the lease contract is defined as Expense for this set of books. This means all lease payments are posted to expense accounts and can be displayed in the Clearing section.
Execution log for IFRS: Clearing
The Clearing section shows the posting for the lease payments. As the lease installment is paid in advance it decreases the lease liability at the beginning of the payment period. The offset account for lease payments is the clearing account for lease contracts which is also used when assigning the corresponding supplier invoice or the payment allocation to the lease contract.
With the next posting run at 30.04.2019, end of the payment period, the interest and the service charge are posted to expenses. The offset account for the interest is the lease liability which increases it (interest capitalization) and the offset account for the service charge is the clearing account for lease contracts which is also used when assigning the corresponding supplier invoice or the payment allocation to the lease contract.
Execution log for German GAAP: Clearing
All lease payments in this set of books are directly posted to expenses. As the lease installment is paid in advance it is posted at the beginning of the payment period. The offset account for lease payments is the clearing account for lease contracts which is also used when assigning the corresponding supplier invoice or the payment allocation to the lease contract.
With the next posting run on 30.04.2019 at the end of the payment period, the service charge is posted to expenses. The offset account for the service charge is the clearing account for lease contracts which is also used when assigning the corresponding supplier invoice or the payment allocation to the lease contract.
Depreciation postings
The depreciation of the right-of-use asset is executed by the Depreciation Run. You can create a depreciation run in the Fixed Assets work center. Select the Depreciation view under Periodic Tasks and click on New and select Fixed Asset Depreciation Run.
This short introduction of Lease Accounting shall help you to start using the new capabilities in SAP Business ByDesign.
Hi Sissi,
In demo url system that I use, try to find out "Lease accounting" in scoping but it seems that it is not available. for which country this new function is available in 1911?
Many thanks,
Best regards,
Lucie
Hi Lucie,
it is not country-dependent. In the Questions step in Scoping expand the Financial and Management Accounting scoping element and select General Ledger. Check the In Scope box for the question Do you want to enable lease accounting for lessees?.
See also Lease Management Accounting: Configuration Guide in our help documentation.
Best regards,
Sissi
Hi Sissi,
is its possible to the migrate lease contract.
If possible, can you advise on how to migrate?
Regards,
Dheeraj
Hi Dheeraj,
yes, it is possible to use a migration template. You can find further information in this help document Business Configuration Documents - Configuration: Transition of Lease Contracts.
Best regards,
Sissi
Thanks for the information
i am unable to view the Business configuration documents.. Would it possible to provide alternative link.?
Hi Raghavendra,
if the link does not work, search in the system help for Configuration: Transition of Lease Contracts (see screenshot).
Best regards,
Sissi
Hi Sissi,
Unable to open the Link, Error message " 404 - you do not have access to this link"
Kindly help
Thank you
Hi Sukrutha,
please try this link Configuration: Transition of Lease Contracts. If the link still does not work for you, please search in the system help for Configuration: Transition of Lease Contracts.
Best regards,
Sissi
Hi Sissi,
If possible, we would like to understand the formula used to calculate the data presented in those 3 tables such as Discount Factor, Depreciation, and Interest expense.
The way we calculate the value of RoU is quite different locally. So I need to understand how the system calculate the things. From the system calculation, it is quite different from what I calculated in my excel. If it is the case, then how the system can support the figures that are already created by the lessor both for "Interest Expense" and "Repayment" values.
Best Regards,
Weerakhan T.
Hi Weerakhan T.,
so far did not hear from other customers that the lessor provides the whole information of interest expense and repayment amounts. If this is the case and you need to enter it exactly as it is provided by the lessor, you cannot use our solution and need to post it by manual journal entry vouchers.
We use in our calculation act/360 as interest usance (interest calculation method) and a formula for compound interest. Interest and depreciation amounts are calculated on a daily basis. For further explanation see the formulas in the below screenshots.
Discount factor
Interest calculation
Best regards,
Sissi
Hello Sissi,
Thanks so much for your detailed explanation. However, i need further clarity.
Please can you explain the logic behind using 360? --- so act/360.
Why was the number 360 chosen. I just want to understand so I can also explain properly to the client
Also why are we saying Day 30 on the 31st of March 2018... is that not meant to be the 31st day?
Hello Jennifer,
when developing the solution we had to decide based on which of the following interest usances we shall calculate the present value and the interest as the accounting standards do not provide any information about it.
The interest usance act/360 is used in the capital market and for the calculation of mortgages. Therefore, we decided to use it in our solution.
For the day we have the limitation that we do not provide a selection of the last day in a month. In the case when a lease contract starts on the 30st of April for each month day 30 is considered.
Best regards,
Sissi
Hi Sissi,
Thanks for you recent assistance on issues I was having. I'm in the process of running some lease contract tests and would like your guidance on how the inputs should look for rent free periods on a property lease.
I don't seem to be able to process a deferral on installment start dates. For instance, Lease start date = 01.01.2019 with a rent free period for the first 6 months.
Any assistance you can provide is much appreciated.
Regards
Carl
Hi Carl,
in case of a rent free period for the first 6 months, please enter for the lease installment the following information. From 01.01.2019 to 30.06.2019 a lease installment with an amount of 0. From 01.07.2019 onward the agreed lease installment amount.
Best regards,
Sissi
嗨西西，
就我而言，租賃分期付款將更改為另一個數字，但是當我設置條件時，它會跳出錯誤，我的設置是否有問題？
我的螢幕
最好的祝福，
馬丁
Hi Yu-Ting,
the lease installments can only be handled as a full month. In your examples please enter always the 1. of the month to start a new lease installment validity range (e.g. 12/01/2022). This will resolve the error message.
Best regards,
Sissi
Hi Sissi,
I already solve it still thx
best regards,
Martin
Hi Sissi,
Thanks for you kindly instruction.
But I have a question that how to do the lease contract data migration when complement a new project?
Regards
Leon
Hi Leon,
for the time being we do not support a real data migration of lease contracts as we are not able to take over the historic acquisition value and cumulative depreciation for ROU asset.
For the time being you can only create lease contracts which start after the migration date. The ones before the migration date need to be handled manually.
Best regards,
Sissi
Hi Sissi,
thanks for the detailed post! Regarding the migration - is there a timeline for a real data migration of lease contracts (in 2021) or does ByDesign simply not provide that functionality? I couldn't find any ByDesign related help articles stating that the system doesn't support historic contracts and it would be very useful to some of our clients which currently handle their leases manually and would really like to use ByDesign for that.
Best regards,
Wolfgang
Hi Wolfgang,
for the time being I cannot give any timeline. As soon as I have more information, I will let you know.
Maybe you can create an improvement request in our Customer Influence Session, so that other partners and customers can vote for it.
Best regards,
Sissi
Hello Sissi,
Thanks for your blog. It has been really helpful to set up and test the Lease Contract Management module.
However, I am still having the same issue on real data migration of existing lease contracts (started before the migration data) so I assume SAP did not work on that system limitation since your last comment on January 2021. Do I am right? Is there any workaround to avoid handling the existing leases manually?
Here is the link to the improvement request so as other partners/customers can vote for it:
Thanks in advance.
Regards,
Andres
Hello Andres,
yes, we were not able to finalize this topic due to other priority topics.
I have merged your improvement request with an already existing one which has already votes: Migration of running lease contracts should lead to right-of-use asset with hist cost and acc depr.
Best regards,
Sissi
Hi Sissi,
I hope you are well. The senior finance team at my company have requested that we implement IIFRS16 in our management accounts with affect from 01.01.2021.
Are you able to give me some guidance on how to amend the posting relevance of an existing lease (i.e. one currently set to "Expense" to be amended to "Finance lease" (if it is possible). I've been unable to figure this out in my testing thus far.
Many thanks in advance for your assistance.
Carl
Hi Carl,
it is not possible to amend the posting relevance of an existing lease contract. You can change the default settings for the corresponding accounting principle in business configuration, but this will also only effect new lease contracts.
Best regards,
Sissi
Hi Sissi,
I am trying to implement lease contracts management for our existing canadian customers that are running ByD using the canadian GAAP accounting principles. The module keeps on dumping when we select the lease Valuation Type : "IFRS 16" and the relevance set as "Finance Lease".
This config dumps.
This config dumps
This config works, but do not capitalize the contracts, obviously
But this config works fine when the company is opened with both, IFRS and CA GAAP, set of books
From what I understood in this blog is that it is only available for IFRS & US GAAP accounting principles. In Canada we do have this principle,Section 3065 or ASPE 3065, before IFRS and US GAAP adopted it.
The thing that I'm trying to understand, is that we do have demo systems that have companies opened with both, IFRS & CA GAAP set of books and the financial leases in the CA GAAP set of books get capitalized just as the IFRS set of books. So why it wouldn't work for a company that has only the CA GAAP opened ? MAybe I got something wrong it the configuration, can you confirm to me whether or not we could use this functionality for only CA GAAP companies ?
Thanks,
Andréanne
Hi Andréanne,
it should be possible to use this functionality only for Canadian GAAP companies, but at least accounting principle IFRS needs to be in scope. You do not need to assign it to any set of books / company, but it needs to be activated. If you face any further issues during the set up, please create an incident for it.
Best regards,
Sissi
Thanks Sissi for your reply.
We have already tested that, activate the accounting principle IFRS and it keeps on dumping as well. I will raise the incident.
Regards,
Andie
嗨西西
当我运行租赁过帐操作时，系统提示操作成功，但是有错误。
错误信息：
项目类型的历史成本：今年缺乏确定帐户的能力
无法处理与租赁合同有关的其他评估项目1
我修改了总账的科目确定，但仍然提示相同的错误。
怎么处理呢？
最好的祝福
苏菲亚
Hi Jiang,
please create an incident for it, so that we can analyze it in your system.
Thanks and best regards,
Sissi
HI
I have the same problem, did you fix out this?
could you tell me how to deal with this problem?
thank you
Hi,
Is there a way to break out the liability into current and non-current portion?
Thank you.
Temsiri
Hi Temsiri,
we have no run or any other automatic functionality to support this requirement. You can create a new report based on the FINLCVALUU - Lease Contract Valuation Cash Flows data source to gather the information and based on the result create a manual posting.
For the new report you need to enable multiple selections of lease contracts and for example add for a year-end view the company, set of books, the year and the lease ending balance in the view.
Best regards,
Sissi
Dear Sissi,
Is it possible to handle interest rates in IFRS16 for 2 different companies? Or only 1 interest rate is possible? If not possible what will be the best solution?
Thank you
Dear Mamo,
I am not sure, if I get your question correct. The interest rate is entered for each lease contract, and a lease contract is entered for a specific company. Therefore, the interest rate is handled per lease contract / company.
Best regards,
Sissi
Dear Sissi Ruthe,
The question was how many interest rates can we have per lease contract? For example is it possible to have 2 interest rates per 1 lease contract? If not what's the best solution to use multiple rates on 1 lease contract?
Thank you
Dear Mamo,
what is the exact use case? Do you need different interest rates per accounting principle such as IFRS and US GAAP? If this is the case, we do not support it in ByD.
Or do you have two interest rates for different timelines? If this is the case, you need to create a new version for the lease contract.
Best regards,
Sissi
Dear Sissi Ruthe
Thank you for reply. We need 2 interest rates for 2 different entities shown on the same lease contract for reporting purposes. My understanding is that SAP is currently only providing 1 interest rate on each lease contract so for implementing 2 rates we need to have a custom solution/program + a custom table.
Best regards,
Dear Mamo,
if you need the second interest rate only for reporting purposes, you can also add an extension field in the adaption mode of the key user settings.
Best regards,
Sissi
Hi Sissi
Regarding the invoice schedule generated from the lease. Is it possible to amend the individual invoice dates in the schedule of the lease? For example billing every 3 months on the 25th, creates:
25 March, 25 June, 25 September, 25 December.
Can these be amended to:
25 March, 24 June, 29 September, 25 December
In the UK, certain leases are billed on Quarter Days (see https://en.wikipedia.org/wiki/Quarter_days), so there is a requirement in the UK for these dates to be 25 March, 24 June, 29 September, 25 December.
Thanks
Hi David,
this is not possible in the current design. In this case, it needs to be discussed with an auditor, if the valuation (net present value calculation) with a due date always on the 25th is acceptable.
In the current design, we validate, if the recurrence is always a full month (or a full quarter, a full year). It would be good, if an improvement request in our Customer Influence Session is created for this requirement, so that others can vote for it as well.
Best regards,
Sissi
Hi Sissi,
thanks for this helpful post on Lease Contracts.
I have 2 questions:
Thanks,
Marcel
Hi Marcel,
please find my answers to your questions.
Best regards,
Sissi
Hi Sissi,
it seems like the report issue ('Schedule of Fixed Assets' not showing RoU Assets that were valid for only a part of the reporting period) was solved and rolled out with release 21.05.
Thanks !
best regards,
Marcel Dekker
Hi Sissi
is sap byd support accounting from lessor side
Hi Mustafa,
no, SAP ByD only supports the lessee side, not the lessor side.
Best regards,
Sissi
Hi Sissi
how can I add a downpayment to the contract?
and this error
Hi Mustafa,
we did not enable down payments for lease contract assignments.
The down payment can be reflected in the lease contract by the condition type initial cost (see screenshot). It is a one-time payment on the start date of the lease contract. These cost will be considered in the ROU asset opening balance and the offset account is the lease clearing account.
When the down payment gets confirmed in the bank statement, you can assign the payment allocation to the lease clearing account to get it balanced.
I hope, this clarifies your question.
Best regards,
Sissi
Hi Sissi
how can I change the deprecation method for the ROU asset?
Even though I determine the Straight Line method for the ROU Asset Classes as the default method
and the method assign after the asset create is LEAS - ROU asset: Calculated by lease contract
Hi Mustafa,
we do not allow to assign other depreciation methods to ROU assets, because the depreciation gets calculated based on the lease contract information. The depreciation amounts are transferred from the lease contract valuation cash flow to the ROU asset to ensure a proper depreciation based on the accounting standard.
The LEAS depreciation method is a straight-line method. We calculate the depreciation amount per day.
What is the reason you want to assign a different depreciation method?
Best regards,
Sissi
In some cases, the contract period is 3 years, but the default life of the asset is 5 years
Hi Mustafa,
according to the terms defined in the IFRS 16 standard the useful life is the period over which an asset is expected to be available for use by an entity which is the lease term.
Paragraph 32 defines that the ROU asset shall be depreciated from the
commencement date to the end of the lease term which is the lease contract start and end date. Only in case the lessee purchases the ROU asset, the useful life shall be from the commencement date to the end of the useful life of the underlying asset.
This is the reason why we fixed it to the lease contract start and end date. In case of a purchase at the end of the lease term a transfer from the ROU asset to a new fixed asset is done automatically with the default useful life.
I hope, this helps.
Best regards,
Sissi
Dear Sissi Ruthe
Thank you for your reply.
Dear Sissi,
Thank you for your explanation.
I would like to know the calculation logic for "Interest Expense" in Finance Lease.
Could you tell me the detail logic for calculating "Interest Expense" in Finance Lease?
Regards,
Hikaru
Dear Hikaru,
we use in our calculation act/360 as interest usance (interest calculation method) and a formula for compound interest. Interest and depreciation amounts are calculated on a daily basis. For further explanation see the formulas in the screenshots of my comment https://blogs.sap.com/2019/07/23/lease-accounting-for-lessees-with-sap-business-bydesign-based-on-ifrs-16-asc-842/comment-page-1/#comment-504228.
I hope, this helps.
Best regards,
Sissi
Dear Sissi,
I could understand the calculation logic for "Interest Expense" in Finance Lease.
I quite appreciate that.
Sorry for again, but I would like to ask you one more question about "Due Date after Lease Contract Invoice Runs."
After "Lease Contract Invoice Runs", the new supplier invoice will be created.
In this case, how "due date" in this new supplier invoice will be decided?
This is because "payment term" will not reflected in the supplier invoice unless "payment term" is set in the supplier master.
My Client wants to create the supplier invoices in which "due date" will be set following "payment term" which is set in the supplier invoice.
If you have any questions, let me know freely.
Thank you for your help in advance.
Regards
Hikaru
Dear Sissi,
I have one more question about the lease contract migration.
We uploaded the lease contract migration sheet, then we executed "Lease Posting Run"(Initiation) to get the acquisition cost for the finance lease.
However, the value after executing "Lease Posting Run"(Initiation) was different the value of "RoU Opening Balance" in the migration template.
Could you tell us the reason of the difference?
We would like to get the the acquisition cost for the value of "RoU Opening Balance" in the migration template.
Regards
Hikaru
Dear Hikaru,
as far as I understand, you want to create supplier invoices by the lease contract invoice run which contain the payment terms defined in the supplier master. The due date shall be calculated based on the payment terms. Is this correct?
Related to your second question: the "RoU Opening Balance Amount" in the migration template is only considered, if you use transition type "Cumulative A" in the lease contract (see screenshot). In all other cases, the opening balance is calculated based on the future lease installments, or in case of transition type "Retrospective" on all lease installments (historic and future).
Best regards,
Sissi
Hello Sissi,
I created a similar Lease contract as below:
period: From Jan 1st, 2021 to Dec 31st, 2021 (12months)
Lease Amount: 1000 /month
Interest: 1%
Regarding the calculation method explained above, the result should be: 11.934,92
But in the report, it shows: 11.945,00
Is the calculation method different?
For Lease contract details and Report please refer to the images attached here:
Hello Abolfazl,
I have done a calculation based on your parameters in Excel with our calculation method. The result is 11.944,96 as you can see in the screenshot.
Best regards,
Sissi
Hi Sissi,
Thanks for your reply.
By the way would you please show me the formula for the Depreciation column?
Hi Abolfazl,
first you need to calculate the depreciation amount per day: opening balance divided by the total number of days of the lease contract duration. The daily depreciation is in your example 230,587333. For each month you multiply the daily depreciation by the number of days for the month, which is for March 2018 30 days: 230,587333 x 30 = 6.917,62.
Best regards,
Sissi
Thank you for your reply
Hello Sisi,
I created a similar Lease contract as below:
period: From May 1st, 2021 to April 1st, 2031 (120 months)
Lease Amount: the sum of 30277777.78 was paid upfront (Prepaid lease payment). While commencing from May 1st 2026, 6,055,556/year will be paid
Interest: 1.72%/month
How can the above case be represented based on the calculation method explained above and also maintained on the bydesign system.
Regards,
Sesan Ogundiran
Hi Sisse,
This is in reference with the an Incident: 1000011501 and Ext refID-759622/2021 raised with SAP support.
This is regarding the Lease Contract Renewals issue.
Below is the business case: Our Business user has created the Lease Contract with Start Date is 01-Jan-2020 and End date is 31-Jul-2021 and added renewals for 3years and system automatically changed the Term date of the contract to 31-Jul-2024.
Now business user wants to change the end date to 31-Aug-2021 and also remove renewals so that we can close the Lease Contract. Please check and update us what needs to be done inorder to update the Lease contract. Let me know if you need any details.
Thanks
Durga Prasad
Hi Durga Prasad,
I checked your business case based on your incident.
The user entered an effective date for the new lease contract version which is greater than the due date of the renewal option 31.07.2021. If you want to remove the renewal option in a new version, you need to enter an effective date which is equal or less than the due date 31.07.2021 of the renewal option.
The new lease contract version is already released in your test tenant. Therefore, please create a new lease contract and create a new version with an effective date less or equal 31.07.2021.
Best regards,
Sissi
Hi Sissi
The functionality does not seem to work for leases ending half way through a month. Is that correct?
Regards,
Steve
Hi Steven,
yes, this is correct. The solution only supports full months as a minimum period.
Best regards,
Sissi
Hi Sissi
Thanks in advance.
Hi Mohamed,
in the leased objects tab under conditions you can add initial cost. The due date of initial cost is automatically set to the start date of the lease contract. These cost will be added only to the ROU asset, not to the lease liability.
I hope, this information helps in your case.
Best regards,
Sissi
The charged landed cost required to be added the leased asset value is from a different supplier than the one in the contract.
This is the required case.
Hi Mohamed,
in this case please create the supplier invoice with account assignment type "ACC - General Ledger Account only" and an account determination group assigned to the lease clearing account. The journal entry will post debit lease clearing account against credit accounts payable), see screenshots.
Enter the net amount as initial cost in the lease contract.
Execute a lease posting run for the lease contract. The lease posting run will post debit ROU asset / credit lease clearing account. Afterwards you can clear the open items, in case you defined open item management for the lease clearing account.
Best regards,
Sissi
Hi Sissi
Thanks for your post.
Three questions:
Kind regards,
Steve
Hi Steven,
please find my answers to your questions below.
I hope this information helps you.
Best regards,
Sissi
Hi Sissi
One last question. How does the functionality deal with a "Make Good" Provision?
Regards,
Steve
Hi Steven,
can you please explain a bit further what you mean with "Make Good" provision?
Thanks and best regards,
Sissi
Hi Sissi
A Make Good provision may include the costs of:
I'm assuming you would use the condition type 'Estimated Cost' for this?
Thank you,
Steve
Hi Steven,
yes, exactly. For this purpose you can use condition type 'Estimated Cost'. At the end of the lease contract the amounts from this condition type will be posted from the lease liability account to the lease clearing account (debit lease liability, credit lease clearing account). You need to check, if any cost occurred and if the amount is correct and do necessary manual postings (manual supplier invoice, manual journal entry voucher) to clear the open amount on the clearing account.
Best regards,
Sissi
Dear Sissi,
We have posted a New lease Contract and ROU Asset is capitalized with Cummulative Lease payments, But we would like to reduce the XX amount from the Acqn cost of the Lease Asset. The option I have is either Manual Depreciation or write-up Depreciation. The system does not let me use the Depreciation type 3- Write down option and I am getting the below error and not able to post the Journal entries.
Kindly suggest
Thank you in advance
Sukrutha
Dear Sukrutha,
manual postings are not allowed for ROU assets to ensure that it always reflects the values provided by the lease contract valuation. If you want to reduce the ROU asset acquisition cost, please use condition type "Initial cost" for this amount. This will reduce the acquisition cost of the ROU asset without impacting the lease liability.
The initial cost will be posted by the lease posting run to the clearing account for lease and can be cleared by a manual journal entry voucher or a supplier invoice.
Best regards,
Sissi
Thank you very much Sissi !
Dear Sissi,
Can you please let me know what is the best way to migrate a Lease Asset from the Legacy system to the PRD system?
I have an office building with Lease contract for 125 months, ( start date ) and already finished 15 months in the Legacy system. How do I bring the remaining balances to the PRD system?
Please suggest to me the possible ways, I am ok for a meeting.
Please let me know your availability
Thank you
Hi Sissi,
I have a Lease Asset in the legacy system initially with 125 months and already finished 15months as of 31.12.2021, Could you please let me know
please suggest to me the best possible options, Can I request a meeting if it is ok with you. Please let me know your availability and we can connect
Thank you
Sukrutha
Hi Sukrutha,
you can choose the retrospective transition type to calculate the values on the migration date based on historical information. Due to different approaches in the calculation, the calculated values in ByD will most probably not fit the values in the legacy system. The system will post the values valid on the migration date. Please keep in mind that in our current design the right-of-use asset opening balance is posted as one amount for the remaining book value. The opening balance is not separated in historical acquisition cost and accumulated depreciation, see also my comment on 21.02.2022.
Related to your other questions.
3. Transfer the Asset Balances from the legacy system using the standard Asset Template?
No, this is not possible.
4. Create a Contract and then assign the above asset to the Contract? Is this possible?
No, this is not possible.
5. Our Go-live Date is 31.12.2021
Set the transition date accordingly, see also my comment on 21.02.2022.
Best regards,
Sissi
Dear Sissi,
I have managed to upload the Lease Migartion template and could
But, please let me know why is that I cannot migrate the RoU open balances from the template to the Asset Master (ie the legacy system balances).
I have set the Transition date as 31.12.2021 and used the Retrospective approach.
Thank you in advance
Sukrutha
Lease Contract Template
Hi Sukrutha,
the "RoU Opening Balance" is only considered in case of transition type "Cumulative A", see also my comment on 09.11.2021.
Best regards,
Sissi
Thank you for explaining the procedure of lease accounting in terms of Lessee. Can you please tell us what is the procedure of Lease Accounting for Lessor with SAP Business ByDesign?
Dear Deepali,
thanks for your question. In SAP Business ByDesign we decided to not support Lease Accounting for Lessors as this is a rare business case in our customer segment. In case a customer needs it, a customer-specific solution can be defined. I know one customer who designed a solution based on our standard sales order and fixed asset solution.
Best regards,
Sissi
Thank you Sissi for clearing our doubts.
Regards
Deepali Shenoy
Hi Sissi,
While creating Lease Contract, there is an option for automatic invoice. But when we tried to post that invoice, tax reporting unit is not getting determined automatically and it is showing error, Attaching the screenshot too for your reference.
Could you please help us to sort our this issue?
Thanks and Regards
Deepali Shenoy
Hi Deepali,
thanks for your comment. Can you please raise an incident for this issue. This needs to be checked by my development colleagues from Globalization.
Thanks and best regards,
Sissi
Hi Sissi,
Thank you so much for the lease management guide.
I would like to know the possible approach to maintain leases that have been managed manually prior to the set up. This implies that we have been posting to the ledgers manually from the start of the lease and we want to start making use of the system to manage these leases.
Looking forward to your response.
Regards,
Adedoyin
Hi Adedoyin,
thanks for your question. Can you please follow my comment from 29.03.2022. This should help to answer your question.
Thanks and best regards,
Sissi
Hello Sisi,
Grettings from Colombia,
setting the lease contracts have a crutial configuration, you have related as follows: "By the Relevance you can specify per leased object and set of books if an exemption is applied according to IFRS 16 (short-term lease or low value asset) and therefore post it as an Expense, or classify it is an Operating Lease or Finance Lease according to ASC 842."
I have created lease contracts within accounting principle IFRS and the local set of books making a expense when recognizing. However, the same company have another kind of lease contract, but it is not possible to change the relevance setting up. Now, customer is going to release new lease contracts but relevance can´t be changed. If we change, the initial contract also change but conditions need to be just one.
Could you please help us to understand if there is a workround or a crutial set that are still missing.
Thanks,
Julian Urrea
Hello Julian,
did you select in the configuration for the accounting principle of the local set of books either lease valuation type ASC 842 or IFRS 16, see attached screenshot?
Lease Valuation Type
Best regards,
Sissi
Hello Sissi
My client has a new capital lease with some particularities and would like to know your though on this matter !
The new capital lease starts on the 19th of the month and ends on the 18th of the month. According to your post of February 15, 2022 it is not possible to get a period less than 1 month. Did SAP came with a way to get around this limitation?
The new capital lease has also gratuities and incentive, my client got free months and a lease incentive from the lessor, these freebies and incentives required to be recorded against the first payments. IFRS Incentive Condition will decrease the ROU value but not over first payments. How can I recognize the incentive over my first payments. ByD will create entries but I shouldn't have. Also the interest calculation is totally out compare to my Excel amortization table
Any advise would be much appreciated
Looking forward to your response.
Thank you very much !
Hello Luc,
please let me know if I understand your requirement. As an example, a lease contract starts on 19.09.2022 and runs for 36 months, the end date will be the 18.09.2025. If this is what is required, it is supported by the system. As another example, the system does not support a lease contract which starts on the 19.09.2022 and ends on the 31.08.2025.
The free months in a lease contract can be entered by a lease instalment for the free period with 0 as the amount. If a lease incentive got paid from the lessor to the lessee before the lease contract started, it can be recognized by the IFRS Incentive condition in the system. This condition will reduce the ROU asset opening balance, but not the lease liability.
I hope, this answers your questions.
Best regards,
Sissi
Hello Sissi and Community
I have two questions:
Thank you for your help and best regards from Italy!!
Sergio
Hello Sergio,
the net present value is always calculated on the lease contract start date. The same is valid for the depreciation start date.
You can use the migration template for the following purposes:
I hope this answers your questions.
Best regards,
Sissi
Hi Sissi
thanks for your reply.
I entered a contract which starts on 18/09/2022 and which ends on 17/09/2026 (contract lasts for 48 months). The interest rate is 0%.
In the leased object, I have one object with the following conditions.
At 009/2022, I would have expected a depreciation of (11694.72 / 1460) * 12, the formula stands for ROU Opening balance / number of contract days multiplied by number of days in September.
However ByD calculates that depreciation at 009/2022 is 0.00.
Is it correct that ByD does not depreciate the ROU in 009/2022?
edit 19/10/2022:
I also run the depreciation for 010/2022. ByD posts the depreciation on 31/10/2022, but calculates depreciation as of 18/10/2022. I run the depreciation on 18/10 and as well as on 19/10.
I would have expected the system to calculate the depreciation as 31/10/2022.
Shuouldn't I expect that?
Thank you and best regards
Sergio
Hi Sergio,
yes, the calculation is correct. The first complete depreciation amount is posted in the accounting period when the first recurrence period ends (18.09. until 17.10.2022). This means in your case that in accounting period 010/2022 the depreciation from 18.09. until 17.10.2022 gets posted. This was a design decision made during the development.
It also means, in case of quarterly or yearly recurrences that the depreciation values will be posted four times a year or even once a year.
I hope, this clarifies your question.
Best regards,
Sissi
Hi Sissi
thanks for your explanation. You said that the fact the system calculates the depreciation as of the recurrence of the lease installment was a development decision. I can immagine that calculating the depreciation as of the end of the accounting period was an alternative. Did your decision depended by a business need/usecase?
Thank you and best regards
Sergio
EDIT: Double post
hello Sissi
our auditors wants to know if the fact that depreciation of the ROU Assets depends by the lease installment due date is a design that depends by an interpreation of the accounting principle or it does depends by technical reasons?
Thank you
Sergio
EDIT: Double post
Hi Sissi
our auditors wants to know if the fact that depreciation of the ROU assets happens upone lease installment recurrence is a decision based on technical reasons or it is the application of the accouting principle??
Thank you
Sergio
Hi Sissi,
in the Valuation Cash flow report, is there a way to set a selection such that the system will calculate/display values only as of Lease Instalment Due Date?
for instance, when I run the report, the system shows key figures as of the due date of instalment, a day before each instalment and due date of the service charge.
Thanks
Sergio
Hi Sergio,
thanks for your comment. I guess, the lease installment in your example is paid in advance. In this case, the cash flow includes an additional line for the interest expense to be capitalized with a due date at the end of each payment period. In case, the service expense is due on a different date than the lease installment, this will be shown in a separate line for each due date as well.
If you remove the due date, you can see all amounts added up per payment period. Maybe that serves already as a solution.
What is exactly intended by the required report? If you can provide more information, maybe I am able to provide other solutions ideas.
Best regards,
Sissi
Dear Sisi,
We have a customer that has 70,000+ number of ROU assets at the moment.
1. So the customer wants to migrate the ROU assets to SAP Bydesign but I am concerned whether that would slow down the system or cause any issues in performance wise.
2. The customer usually signs up lease contract 1,000+ per month.
3. The customer's finance team uses a different formula to calculate PV which is XNPV(Returns the net present value for a schedule of cash flows that is not necessarily periodic.).
Any suggestion or advice would be much appreciated.
Regards,
Yohan Oh
Dear Yohan Oh,
you mentioned that the finance team of the customer uses a different formula for the present value calculation. If the calculation is needed in such a way and due to the fact that they have such a high volume of lease contracts which is constantly increasing (1000 plus per month), I would recommend not to use SAP Business ByDesign for their lease contracts and ROU assets.
Maybe you can provide a bit more background of the business and why this customer has such a high volume of lease contracts which is constantly increasing. This may help to find a good solution for the customer.
Thanks and best regards,
Sissi
Dear Sissi Ruthe ,
I have another question regarding depreciation and interest expense of Lease contract.
Do we have an option to change depreciation and interest expense schedule to montly basis?
It seems that the system follows depreciation and interest expense schedule as per the payment schedule.
For example, I have a contract that starts from 22/12/24 that ends 2024/12/23. But the payment schedule is 23/01/31 and 24/01/31 which is on yearly basis;
So when running a lease contract payment schedule lines, system shows as below;
when running a Cash flow report, system would simulate the date from 23/1/31, not 22/12/31.
Also, system would simulate depreciation and interest expense shedule only 2 times as per the payment schedule whereas my expectation was to depreciation on a montly basis.
So again, my question is:
Do we have an option to change depreciation and interest expense schedule to montly basis?
Many thanks in advnace for your assistance.
Best regards,
Yohan
Dear Yohan Oh,
thanks for your comment on my blog post. No, we do not provide an option to change the depreciation and interest expense schedule. This is a new feature request. You can create an improvement request in our Influence Opportunity Homepage - Customer Influence (sap.com) for it.
Best regards,
Sissi
Hii sissi
I want your kind help in more clarification about my questions please:
can we use lease contract management in handling Normal rent contracts?
I can't find (lease invoice run) in the supplier invoicing work center, so can you tell me how to add?
can you clarify how to get automatic invoicing and posting for supplier dues from the lease contract?
thanks in advance
Hi Maged Abou Hashesh,
thanks for your question.
Yes, it is possible to use lease contract management to handle normal rent contracts. In this case, you should define it only as an expense. This ensures that the lease installment is posted to an expense account. You should check, if still a ROU asset gets created. If this is the case, it will increase the volume of fixed assets without any use of it. In this case, you need to decide, if this is okay.
Please check out the Lease Management Accounting: Configuration Guide for all relevant configuration steps. As soon as Lease Contract Management is in scope of your solution, you should be able to assign the Lease Contract Invoice Runs view in work center Supplier Invoicing to your user. Please read the Lease Contract Invoice Runs Quick Guide for further information.
I hope this clarifies your question.
Best regards,
Sissi
Hi Sissi,
I had a lease contract of previous year that I didn't close. Now I am facing an error while performing Balance Carry Forward Run for which I need to perform the closure of the Lease Contract first. Can you please help me with the steps as to how to close the previous years contract so that I can do the Lease Posting Run for Closure??
Thanks & Regards
Deepali
Hi Deepali,
thanks for your question.
To analyze your issue in detail, can you please create an incident for it, so that we can check the lease contract details and postings in the system.
Thanks and best regards,
Sissi
Hi Sissi,
I am not facing any issue but I just wanted to understand the process of 'How to Close the Previous Years Lease Contract?'. If you could guide me with the steps. I want to change the status of the 'Released contract' to 'Closed contract'.
Thanks and Regards
Deepali
Hi Sissi
I have two questions regarding the lease contract function
The contract start date is April 12, but I want to apply the recurrence start date as May 20
2. In case of using 'present value discount' accounts - Is it possible? If possible, how should I set it up?
For example
- Upon acquisition
Debit) Right-of-use assets XX / Lease liabilities XX
Present Value Discount XX
- In case of interest expense (at the end of the month)
Debit) Interest expense XX / Present Value Discount XX
Thanks and regards
Jamie (Jayeon Sim)