Leased Assets

Leased Assets

Use

Leased assets create special accounting requirements for the lessee. During the term of the lease, leased assets remain the property of the lessor or manufacturer. They represent, therefore, a special form of rented asset. Such assets are legally and from a tax perspective the responsibility of the lessor, and are not relevant for assessing the value of the asset portfolio of the lessee. However, in certain countries, you are nonetheless required to capitalize leased assets, depending on the type of financing.

The "leased assets" component enables you to capitalize leased assets in the R/3 FI-AA component using the capital lease method. The system calculates the acquisition value from the present value of the future lease payments in the leasing agreement.

Features

There are different accounting methods that can be applied to leased assets in the system. Depending on legal requirements and the conditions of the lease, there are two different options:

You must capitalize and depreciate certain leased assets (capital lease).

You treat others as periodic rent expense, which flows into the Profit and Loss statement (operating lease).

This second type is not relevant to the fixed assets of the lessee. It is therefore sufficient to

Manage operating leases as statistical assets in the FI-AA component (with no active depreciation areas)
Or to manage them only as cost-accounting values (or for group accounting) in the corresponding depreciation areas.

All leased assets can be evaluated in regard to their rent liability using a special report (see below).

You can also manage insurance values for purely statistical leased assets (without depreciation areas). You can enter a manual insurance value and an index series for the leased assets in the asset master record. You obtain reports on these values using the standard report for insurance values.

Capital Lease Procedure

Leased assets can be capitalized in the R/3 FI-AA component using the capital lease method. The system calculates the acquisition value from the present value of the future lease payments in the leasing agreement. To be able to determine the future burden of payment, you must maintain the following leasing conditions in the asset master records:

Amount of lease payments

Number of payments

Payment cycle

In order to calculate present value, you must also enter an interest rate. The system requires that you post a leasing partner as a vendor in the asset master record at the time of the acquisition posting (opening posting).

At the present time, the capital lease method can only be used for assets that are capitalized in the book depreciation area. The opening posting with simultaneous creation of leasing liability is not possible for assets that have only cost-accounting depreciation areas.

Handling of Input Tax for the Capital Lease Procedure

You can only include the net amount (that is, the amount without input tax) of the liabilities for a leased asset when determining the present value. Therefore, you have to enter the net lease payments in the asset master record.

In addition, set the input tax indicator V0 (= no input tax) in the respective leasing type (see below). In this way, you can ensure that there is no posting of input tax at the time of capitalization. Instead, you should post the input tax directly in the FI system (debit input tax and credit vendor) at the time of payment.

Leasing type

You define the leasing types in FI-AA Customizing. The leasing type is a selection criterion in reporting, and the most important control feature for the posting of acquisitions to a leased asset. It determines the following:

The transaction type used for the acquisition posting of a leased asset. You can control the depreciation areas in which the capitalization posting takes place (such as book depreciation, group concern, and so on) by means of the Customizing definition of the transaction type.

Different specifications for posting to Financial Accounting (for example, document type, input tax indicator, and so on.)

The bookkeeping treatment of the leased asset

You can set the depreciation area for automatic posting to active or inactive in each asset class for leased assets. This determines whether the acquisition of leased assets is posted to G/L accounts. The system also determines the accounts to be posted for leased assets using the account allocation in their asset class.

Leased assets for cost-accounting purposes

If you do not want to capitalize the leased assets, you can still manage the acquisition values in cost-accounting depreciation areas. Just set the corresponding cost-accounting depreciation areas to active (posting to general ledger: inactive) in the asset class of the assets in question. This ensures that no posting is made to Financial Accounting in the event of asset acquisition. You can still use periodic depreciation in the active areas for cost-accounting purposes.

Graphic: Operating Lease Procedure

Leased assets capitalized in the general ledger with interest accrued (capital lease)

In some countries, leased assets must also be capitalized in the book depreciation area or the tax depreciation area. In this case, you must manage the leased asset in an area that posts to the general ledger (generally the book depreciation area). Set posting in the general ledger to active in the corresponding leased asset classes. In addition, enter specifications for posting to FI in the leasing types.

For the acquisition posting, the system capitalizes the fixed asset with the calculated present value. The installment payments are posted to the vendor as scheduled. The system determines the vendor from the leasing partner that you specified in the asset master record.

Graphic: Capital Lease Procedure

Leased assets capitalized in the general ledger without separate interest

In some countries (such as the USA) only the present value is posted as a liability (obligation), in contrast to the above treatment. This means that the interest portion, resulting from the difference between the liability and the present value, as shown in the above case, does not have to be displayed separately. In this case, define the clearing account for the interest portion and the vendor account so that they are both displayed in the same item of the balance sheet.

Periodic Posting

The depreciation posting program posts the depreciation of the leased asset and the write-off of the interest portion. You can use any depreciation key. The standard R/3 System includes a special depreciation key, in which the depreciation amounts correspond to the present value of the periodic leasing payments (LEAS). Using this key, interest is determined as the difference between the leasing payments and the present value.

Calculation of Present Value

The present value of the leased asset is calculated on the basis of the following specifications:

g : Amount of lease payments annual interest rate
n : number of leasing payments
r : leasing cycle (for example, 3 = quarterly, 6 = semiannual)
m : number of periods in a year
q : period interest factor = 1 + ( i / 100 * r / m)

If payment is made at the beginning of the period, the present value then results from the following formula:

Present value = g + g * ( q**n-1 - 1) / ( q**n-1 * ( q - 1))

With payment at the end of the payment period, on the other hand, the present value is calculated as follows:

Present value = g * ( q**n - 1) / ( q**n * ( q - 1))

g: 100
i: 10,000 %
n: 20
r: 3
m: 12
q: 1 + (10,000 / 100 * 3 / 12) = 1,025

Present value at the beginning of the payment period:
100 + 100 * (1,025**19 - 1) / (1,025**19 * (1,025 - 1)) = 1597,89

Present value at the end of the payment period:
100 * (1,025**20 - 1) / (1,025**20 * ( 1,025 - 1)) = 1558,92

Reports

There is a standard report in the system for determining future leasing liability (especially in regard to leased assets that are not capitalized). The report displays for each leased asset:

The payments already made

The payments due up to the date of the report

The total lease payments to be made for the asset

You can create a totals list with cumulative values for each fiscal year and company code. In order for the report to work properly, you must make sure that the following leasing conditions are properly maintained in the asset master record:

Start date of the lease

Payment information (lease payment amount, payment cycle, number of payments)

Leasing type

Using the indicator "APC by acquisition year," you can display the theoretical acquisition value of leased assets according to acquisition year. This statistical analysis is required in some countries for financial reports. The system uses the base new value that is specified in the asset master record in the leasing information. The acquisition year is determined from the start date of the lease.

Implementation Considerations

If you want to manage capitalized leased assets in the system, you must bear the following in mind:

Define leasing types in FI-AA Customizing with the specifications for posting asset acquisitions.

Create special asset classes and account allocations for your leased assets.

Define depreciation areas, in which you plan to capitalize leased assets using the capital lease procedure, so that they manage interest that can be posted with the depreciation posting program.

Activate the depreciation areas, in which the leased assets will be capitalized and depreciated, in these asset classes.

Assign a leasing type to the asset master records for leased assets.

Maintain the information and conditions of the leasing agreement in the master records of the leased assets. Specify an interest rate for calculating the present value and determine whether the leasing payments should be carried out at the beginning of the payment period or at the end of the payment period.

Post the acquisition of a leased asset with the display transaction for asset master data.