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 …)