Theory and Practice
✔ Applies to US GAAP (ASC 842) Finance Leases
✔ Applies to US GAAP (ASC 842) Operating Leases
✘Does not apply to IFRS (IFRS 16)
✘Does not apply to UK GAAP (FRS 102)
The initial recognition example was a 2-year building lease with monthly payments of $10,000 and a lessee’s incremental borrowing rate of 4.75% yields a present value of lease payments (lease liability) on day one of $229,617.19. If payments are linked to CPI, and at the start of month 13, CPI increases from 100 to 110, payments increase to $11,000 per month. Under ASC 842, the $1,000 change in payment is treated the same as any other variable lease payment.
| Account | Debit | Credit |
|---|---|---|
| Lease Expense (variable) or Operating Expense | $1,000 | |
| Cash or Accounts Payable | $1,000 | |
| Additional rent for the period is treated as a variable lease payment. Such payments are not part of the lease liability; they do not affect the ROU asset or lease liability balances. | ||
Doing it in Sage Intacct Lease Accounting
Ensure that the Non-Capitalized Lease Expense GL Account is populated against the Lease Class in use.
Take the lease Out of Service
If no other changes are required to the lease, you many need to run the Generate Payment Schedules option to get the Lease into a Change Status of ‘Payment Schedules Generated’
Then Add or Import further Payment Changes to reflect the changes to the index.
Do NOT Revalue the Lease.
Place the Lease back in Service.
When Payments are processed, the effect of the change of index will be posted to the Non-Capitalized Lease Expense GL Account.