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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.

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

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.

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  • 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,


  • 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,


  • 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.




    • 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,


      • 嗨西西,









        • 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,


  • 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?




    • 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,


      • 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,


        • 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,


  • 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.


    • 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,


  • 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 ?


    • 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,


      • 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.


  • 嗨西西







    • 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,



  • 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,


      • 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,


          • 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,


  • 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, so there is a requirement in the UK for these dates to be 25 March, 24 June, 29 September, 25 December.




    • 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,


  • Hi Sissi,


    thanks for this helpful post on Lease Contracts.


    I have 2 questions:


    1. what is the best process to transfer active Lease Contracts from one Company to another (in the same tenant)?
    2. Why does the report 'Schedule of Fixed Assets'  only show Fixed Assets that have an End Date greater than the End Date of the reporting period? I would expect to see data of all Fixed Assets that were valid during (part of) the requested period.




    • Hi Marcel,

      please find my answers to your questions.

      1. To transfer an active lease contract(s) from one company to another, you need to create a new version of the existing lease contract to end it in the accounting period of the transfer. Afterwards you can copy the lease contract(s) and change the company and the start date. When you create the lease contract(s) in the new company, the opening balances will differ from the ending balances in the previous company, because the new lease contract(s) only consider the remaining payments for the calculation. If the balances must be equal for the transfer, you can use the retrospective transition approach. In this case we need to help you to change the transition date in the backend, so that it works as expected.
      2. This is a known bug and we are working on a fix for it. It happens, if the organizational assignment in the lease contract and ROU asset is not valid on the key date of the report. As an example, the valid to date in the organizational assignment is 30.09.2020, and you want to run the 'Schedule of Fixed Assets' report on the 31.12.2020. In this case, the ROU asset is missing in the report. In case, the lease contract is still open, you can try to add a new interval in the organizational assignment in the lease contract which will extend the valid to date. If this does not work in your case, please create an incident.

      Best regards,


      • 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

    how can I add a downpayment to the contract?

    and this error

    Item 1: Item type not valid for Lease Contracts
    appear when creating down payment request with account assignment Lease Contract
    • 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,


  • 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,


        • 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,