Oracle Lease Asset Step by step With Transaction
If you want Oracle Assets to test your lease to determine
whether to capitalize and depreciate assets assigned to it, enter information
in the Capitalization Test region of the Lease Details window. If you have
already defined a payment schedule for your lease, attach it to the lease in
the Lease Details window. Otherwise, you can navigate to the Lease Payments
window to define a payment schedule and to calculate the present value of your
lease payments. Oracle Assets depreciates Capitalized leased assets and
expenses Operating leased assets.
AS 19 – Accounting for Lease
Lease is an agreement by which the lessor gives the right
to use as assets for given period of time to the lessee on rent.
Type of lease
1. Operating lease 2. Finance Lease
Operating Lease:
It is a lease which does not transfer substantially all the
risk and reward incidental to ownership.
Finance Lease:
It is a lease, which transfers substantially all the risks
and rewards incidental to ownership of an asset to the lessee by the lessor but
not the legal ownership.
The lease term is for the major part of the economic life
of the asset even if title is not transferred;
At the inception of the lease the present value of the
minimum lease payments amounts to at least substantially all of the fair value
of the leased asset;
Applicability: This AS
is not applicable to following type of lease:
1. Lease agreement to explore natural resources
2. Lease agreement for motion picture film, video, plays
and other rights.
3. Lease agreement to use land.
Accounting for
operating lease:
In the books of
lessor:
1. Record lease out asset as the fixed assets in the
balance sheet.
2. Charge depreciation as per AS 6
3. Recognise lease income in P & L account using
straightline method.
4. Other cost of operating lease should be recognized as
expenses in the year in which they are incurred.
5. Initial direct cost of lease may be expensed out
immediately or deferred as per lease term.
In the books of
lessee:
1. Lease payments should be recognized as an expense in the
P & L account on a straightline basis over the lease term.
Accounting for finance
lease:
In the books of
lessor:
1. Recognize asset given under finance lease as receivable
at an amount equal to net investment in the lease and corresponding credit to
sale of assets.
Net Investment: Gross investment – unearned finance income
Gross Investment: Minimum lease payment from lessor point
of view + unguaranteed residual value
Unearned Finance Income: Gross investment – PV of gross
investment
2. Recogintion of Finance Income: On the basis of constant
periodic return on the net investment outstanding in respect of finance lease.
In the books of
Lessee:
1. Lease assets as well as liability for lease should be
recognized at the lower of:
a. Fair value of the leased assets at the in caption of
lease, or
b. PV of minimum lease payment from the lease point of
view.
2. Apportionment of
lease payment:
a. Principal Amount: is reduced from the outstanding
liability.
b. Finance charges: is allocated over lease term in such a
manner that it would produce a constant rate of return on the remaining
principal balance.
3. Charge depreciation on finance lease assets as per AS 6.
4. Initial direct cost for financial lease is included in
assets under lease.
Following are the step by step procedure to be followed while doing Leasing.
Navigate to FA
=>Setup=> Asset System=>Leases=>Lease detail
In the above form (Lease
Details), you need to fill Lease Number, Lessor, Currency Lessor Site, Lease
type. Then you need to create Payment schedule (as shown in the right side of
the screen shot). Then You need to attach lease payment schedule in the lease
details form. Then give payment account also (This field is required if you
plan to export lease payments to Oracle Payables).
Next step is Capitalisation
test as per AS 19 'Leases' (Indian Accounting Standard).
If leasing term exceeds 75% of useful life of asset or
present value is 90% or more of fair value then lease type will be
'Capitalized' else 'Operating'. The cost to capitalise will be lower of fair
value or present value.
Then you need to navigate to Oracle FA =>Setup=> Asset
System=>Leases=>Lease Payments to Payables.
In the find pop up
window, you need to give 'Lease Number' (which you gave in Lease Details form)
i.e., LS/PM/26. Then click find button. Then check the desired invoice which
you want to export to Payable Responsibility for making payment.
Then click export button. Then the
concurrent 'Export Lease Payments to Payables' will be running.
Then navigate to Oracle Payable=> Invoices=>Entry=>Open
Interface invoices and query the Invoice number i.e., FA-LS/PM/26-1 to know
whether it is in Payable Open interface Invoices (See below Screen shot)
Then run the 'Payable Open interface lmport' concurrent in
Payable Responsibility
The output of the above concurrent
In Invoice screen call the invoice and
validate & make payment.
To map the Leased asset on the FA Book, In addition to normal FA
setups, we should have 'Lease Book' and Asset category as leased.
To navigate FA=>Asset=>Asset Workbench then click
on 'Addition' button
then click 'continue' button
then assign the Lease book
then click 'continue' button
Inquire for the Leased Asset by the asset number
Co-ordinated by Binoop Sunder
