Asset Leasing transaction of lease summary in Dynamics 365 Finance & Operation Part 3

 Business Scenario

Company ABC (lessee) has taken Mercedese on lease for 10 years on annual lease payment. Lease details are as below:

Discounted Rate/Interest Rate	12%
Life of Asset/lease period in months	120
Annual Payment	2,00,000.00
Start Date	01-04-2023

Actual Value of Asset: 1130044.61

Annuity Type: Ordinary Annuity

Compounding Interval: Annually

Calculation of future lease payment:

(A) LEASE CREATION PROCESS IN D365 FINANCE & OPERATIONS:

1. Creation of Lease Summary

 

2. Add Lease Details

Select Vendor Account in Lease Summary form if Pay to Vendor Bullion is TRUE in Lease Books.

Annuity due: is an annuity with payment due or made at the beginning of the payment interval.

Ordinary annuity: It generates payments at the end of the period.

3. Add and create Schedule

4. Notification came in Action Center after creating Schedule

(B) LEASE CREATION PROCESS IN D365 FINANCE & OPERATIONS:

1. Now Go to Books to See the created Schedule for each book

2. To see all the created Schedule:

Here only 3 schedule is created, Expense schedule is not created since details of expense is not provided in lease summary

3. To see payment schedule for Book IFRS 16 > Click on Payment Schedule

4. click on Confirm Schedule to confirm it

Note: In this particular business scenario Payment Schedule journal will be created once in a year at the last month and last date of the year because annuity type is Ordinary Annuity.

Note: after confirming payment schedule confirm bullion become TRUE and other two schedule will become ready to create journal

5. Create Journal for Initial Recognition of Asset

6. To Post Initial Recognition created Journal 

Go to Lease Summary > Books > Function > Journal > Asset leasing Journal > Post

7.1  To see the Interest Expense Schedule

7.2 To create the Journal

7.3 To See the Created journal from Asset leasing Journal

7.4 To Post the Created journal from Asset leasing Journal

7.5 Calculation Details of the posted Interest Expense

8.1 To see the Asset depreciation Schedule

8.2 To Create the Asset Depreciation Journal

8.3 To see the created Depreciation Journal

8.4 To post the created Depreciation Journal

8.5 Calculation detail of Depreciation Schedule

 

IMPORTANT NOTE: Same steps will be repeated from step 7.1 for other remaining months in the same sequence. First: Payment Schedule, Second: Liability Amortization Schedule, Third: Asset Depreciation Schedule

For payment Schedule: In this particular business scenario Payment Schedule journal will be created once in a year at the last month and last date of the year because annuity type is Ordinary Annuity.

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Asset Leasing Basic Configuration in Dynamics 365 Finance & Operation Part 2

 Basic Configuration

Below is the few mandatory setups required to record the lease transaction. Apart from these, there are additional setups required as business requirements. 

1. Asset Leasing Parameter

1A. Journal Name setup

Below is the journal name where different types of lease transactions will be booked

1B. Lease Posting Profile / Lease account setup

Note: Leases under IFRS 16 are classified as finance leases whether you choose Operating as a lease type in the lease Book. So with this reason Operating Lease main account must be defined it is mandatory field

 

2. Lease Books

Lease books contain the accounting policies that determine how a lease is accounted for

Note: Leases under IFRS 16 are classified as finance leases whether you choose Operating as a lease type. So with this reason Operating Lease main account must be defined it is mandatory field

3. Lease Group

Lease groups are required to create new leases. Lease books are associated with each lease group

4. Expense Type

Costs that aren't represented by the payment schedule are known as expense costs. Examples of these costs include property taxes, common area maintenance costs, and insurance expenses.

Note: Here in Asset leasing taxes are not taken care separately so this feature is used to account those costs.

4A. Create new Expense Type

4B. Assign Account to Expense type

Finance / operating lease main accounts will be debited when expense schedule entries are posted. The offset account is specified on the Executory costs payment schedule lines on each lease.

4BA. where to assign offset account

The offset account is specified on the Executory costs payment schedule lines on each lease.

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Asset Leasing General Introduction in Dynamics 365 Finance & Operation Part 1

 Introduction

Asset leasing is an advanced capability for managing, tracking, and automating financial transactions for leased assets in Microsoft Dynamics 365 Finance. Asset leasing complies with International accounting standards (IFRS 16) and US GAAP standards (ASC 842).

Lease agreement - The lessor (who owns the asset and provide asset on lease/rent to the lessee) owns the asset and agrees with the lessee (who take asset on lease from lessor) to lease an asset for specific period in exchange for periodic lease payments.

Note: Accounting in D365 Finance will be done on behalf of lessee.

 

Concept of Asset Leasing

Note: Defined Value (in above image) for Short term lease / low value lease is defined on Lease books as a threshold. Below is the image from D365 Finance & Operation where these value is defined.

Accounting for this -  deferred rent treatment is applied (expensed off like a rent) - Income Statement treatment no impact on Balance Sheet

 

Accounting Entries

How to enable Asset Leasing Module:

First go to feature management from workspace and then search for Asset Leasing in all and Finally Enable it from Enable Now button in below extream right. After this refresh the browser URL, Asset Leasing Module will be visible in Module Section.

NOTE: We will learn basic configuration of Asset Leasing Module in the Part 2 of the blog.

Thank you 

Happy Learning