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 Asset Accounting (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.

There are different ways of handling the values of leased assets in the system. Depending on legal requirements and the conditions of the lease, there are two different options:

• You have to 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).

• Manage operating leases as statistical assets in the Asset Accounting component (with no active depreciation areas)
• Manage them only as cost-accounting values (or for group accounting) in the corresponding depreciation areas

You can also manage insurance values for purely statistical leased assets (without depreciation areas). You 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.

Leased assets can be capitalized in the Asset Accounting 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 need to maintain the following leasing conditions in the asset master records:

• Amount of lease payment

• Number of payments

• Payment cycle

In order to calculate present value, 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).

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 Financial Accounting (FI) component (debit input tax and credit vendor) at the time of payment.

You define leasing types in Customizing for Asset Accounting. 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. The transaction type controls the depreciation areas in which the capitalization posting takes place (such as book depreciation, group depreciation, and so on). You define the transaction type in Customizing for Asset Accounting.

• 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

The depreciation posting program posts the depreciation of leased assets and the write-off of the interest. 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.

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

g : Amount of lease payment

i : Annual interest rate

n : Number of lease 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))

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 APC by acquisition year indicator, 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.

If you want to manage capitalized leased assets in the system, follow these steps:

• Define leasing types in Customizing for Asset Accounting 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 lease payments should be made 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.