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Sunday, September 23, 2012

Oracle Lease Asset Step by step With Transaction

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