Overview
This white paper discusses the UGAAP lease accounting software calculation of each field of the lease amortization table under the new lease accounting standard. It covers both operating leases and finance leases. For the convenience of discussion, the paper covers the typical leases where rent is paid in advance (at the beginning of the month). Leases where the rent payments are in arrears require slightly different calculation. Some of the tricky fields are Rent, Current portion of lease liabilities, Right-of-use assets (ROU) and their amortization.
Period
Periods in initial lease term: 0 - 999
Periods in first modified lease term: 1000 – 1999
Periods in second modified lease term: 2000 – 2999
Etc.…
Rent
Contractual minimum lease payments. Enter $0 for free rent months. Include any variable rents that depend on an index or a rate. Include any probable residual value guarantee payment in the final month rent. Include purchase price in final month rent if bargain purchase option exists.
Additional Rent
Rent NOT Capitalized: CAM, other variable rent, and other nonlease components
Total Liabilities
End-of-month liabilities. Period 0 (or 1000, 2000…) balance is net present value of Rent during initial or post-modification lease term. Subsequent period balances are beginning balance plus accrued interest, minus interest payment, and minus principal payment.
Liabilities - Current
Principal payment in the next 12 months, plus the smaller of current month unpaid interest and interest payment in the next 12 months.
Liabilities – Noncurrent
Total liabilities minus current liabilities
Interest Paid
The smaller of prior month unpaid interest and current month Rent
Principal Paid
Rent minus Interest Paid
Interest Expense
(Prior period ending liabilities - current period rent) X discount rate
ROU Asset
Period 0 balance is Total Liabilities adjusted by initial direct cost, initial incentives, and initial other ROU items (pre-commencement rent, contractual leasehold improvement cost, ASC 840 carryover balances ...). Initial modified (periods 1000, 2000, …) balances are pre-modification un-amortized balances adjusted by adjustment of lease liabilities, further adjusted by non-rent ROU adjustments from modification (impairment, adjustment of incentives, modification costs …). The subsequent period balances are beginning balances minus amortization expenses.
ROU Amortization
Finance Leases or post-impairment operating leases – Period 0, 1000, or x000 ROU Asset balance divided by shorter of remaining useful life or remaining lease term. Amortize over asset remaining useful life if the following conditions exist: ownership transfer, or bargain purchase option.
Operating Lease – Total Lease Expenses minus Interest Expense
Total Lease Expenses
Finance Leases or post-impairment operating leases - Interest Expense plus ROU Amortization
Operating Leases – (total Rent during lease term + initial/modification direct cost + incentive adjustments + Other ROU items) / lease term
Other ROU Adjustments
Initial direct cost, initial incentives, Other ROU items (pre-commencement rent, contractual leasehold improvement cost, ASC 840 carryover balances ...) and non-rent ROU adjustments from modification (impairment, adjustment of incentives, modification costs …)