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:
This second type is not relevant to the fixed assets of the lessee. It is therefore sufficient to do one of the following:
There is a special report on rent liability that can be used for all types of leased assets (see below).
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.
Capital Lease Method
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:
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).
At the present time, the capital lease method can only be used for assets that are capitalized in the book depreciation area. An 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 Method
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:
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.
If you do not want to capitalize leased assets, you can still manage their 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 active depreciation areas for cost-accounting purposes.
In some countries, you are required to capitalize leased assets for book depreciation or for tax purposes. In this case, you have to 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 Financial Accounting 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
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 amount, 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.
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.
Calculation of 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))
g : 100
i: 10.000 %
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
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:
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:
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: