Leased Assets

Purpose
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 capitali e leased assets, depending on the type of financing. The Leased Assets component enables you to capitali e leased assets 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.

Features
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' ( )ou have to capitali e and depreciate certain leased assets !capital lease&. ( )ou treat others as periodic rent expense, which flows into the profit and loss statement !operating lease&. This second type is not relevant to the fixed assets of the lessee. #t is therefore sufficient to do one of the following' * +anage operating leases as statistical assets in the Asset Accounting component !with no active depreciation areas& * +anage them only as cost$accounting values !or for group accounting& in the corresponding depreciation areas There is a special report on rent liability that can be used for all types of leased assets !see below&. )ou can also manage insurance values for purely statistical leased assets !without depreciation areas&. )ou enter a manual insurance value and an index series for the leased assets in the asset master record. )ou obtain reports on these values using the standard report for insurance values. Capital Lease Method Leased assets can be capitali ed 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' ( %mount of lease payment ( ,umber of payments ( -ayment cycle #n 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&.

%t the present time, the capital lease method can only be used for assets that are capitali ed in the boo. depreciation area. %n opening posting with simultaneous creation of leasing liability is not possible for assets that have only cost$accounting depreciation areas. Handling of Input Tax for the Capital Lease Method )ou can only include the net amount !that is, the amount without input tax& of the liabilities for a leased asset when determining the present value. Therefore, you have to enter the net lease payments in the asset master record. #n addition, set the input tax indicator V0 !/ no input tax& in the respective leasing type !see below&. #n this way, you can ensure that there is no posting of input tax at the time of capitali ation. #nstead, you should post the input tax directly in the Financial Accounting !"#& component !debit input tax and credit vendor& at the time of payment. Leasing Type )ou define leasing types in 0ustomi ing for Asset Accounting. The leasing type is a selection criterion in reporting, and the most important control feature for the posting of acquisitions to a leased asset. #t determines the following' ( The transaction type used for the acquisition posting of a leased asset. The transaction type controls the depreciation areas in which the capitali ation posting ta.es place !such as boo. depreciation, group depreciation, and so on&. )ou define the transaction type in 0ustomi ing for Asset Accounting. ( Different specifications for posting to "inancial %ccounting !for example, document type, input tax indicator, and so on.& ( The boo..eeping treatment of the leased asset )ou can set the depreciation area for automatic posting to active or inactive in each asset class for leased assets. This determines whether the acquisition of leased assets is posted to 12L accounts. The system also determines the accounts to be posted for leased assets using the account allocation in their asset class. ( Leased assets for cost-accounting purposes #f you do not want to capitali e leased assets, you can still manage their acquisition values in cost$ accounting depreciation areas. 3ust set the corresponding cost$accounting depreciation areas to active !posting to general ledger' inactive& in the asset class of the assets in question. This ensures that no posting is made to "inancial %ccounting in the event of asset acquisition. )ou can still use periodic depreciation in active depreciation areas for cost$accounting purposes.

1raphic' 4perating Lease -rocedure

The following graphic shows the accounting treatment of leased assets that are only capitalized in the cost

accounting depreciation area.

Operating Lease Procedure

( Leased assets capitalized in the general ledger with interest accrued capital lease! #n some countries, you are required to capitali e leased assets for boo. depreciation or for tax purposes. #n this case, you have to manage the leased asset in an area that posts to the general ledger !generally the boo. depreciation area&. Set posting in the general ledger to active in the corresponding leased asset classes. #n addition, enter specifications for posting to "inancial %ccounting in the leasing types. "or the acquisition posting, the system capitali es 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. 1raphic' 0apital Lease -rocedure
The following graphic shows an example of the posting transactions when capitalizing a leased asset:

Capital Lease Procedure

( Leased assets capitalized in the general ledger without separate interest #n some countries !such as the 5S%& 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. #n 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. Periodic Posting The depreciation posting program posts the depreciation of leased assets and the write$off of the interest. )ou can use any depreciation .ey. The standard 627 System includes a special depreciation .ey, in which the depreciation amounts correspond to the present value of the periodic leasing payments !L8%S&. 5sing this .ey, interest is determined as the difference between the leasing payments and the present value. Calculation of Present "alue The present value of the leased asset is calculated on the basis of the following specifications' g ' %mount of lease payment i ' %nnual interest rate n ' ,umber of lease payments r' Leasing cycle !for example, 7 / quarterly, 9 / semiannual& m ' ,umber of periods in a year q ' -eriod interest factor / : ; ! i 2 :<< = r 2 m& #f payment is made at the beginning of the period, the present value then results from the following formula' -resent value / g ; g = q== !n$:& $ : 2 !q==n$: = !q $ :&& >ith payment at the end of the payment period, on the other hand, the present value is calculated as follows' -resent value / g = ! q==n $ :& 2 ! q==n = ! q $ :&& 8xample g ' :<< i' :<.<<< ? n' @< r' 7 m' :@ q' : ; !:<.<<< 2 :<< = 7 2 :@& / :.<@A -resent value at the beginning of the payment period' :<< ; :<< = !:.<@A==:B $ :& 2 !:.<@A==:B = !:.<@A $ :&& / :ABC.DB -resent value at the end of the payment period' :<< = !:.<@A==@< $ :& 2 !:.<@A==@< = ! :.<@A $ :&& / :AAD.B@ #eports There is a standard report in the system for determining future leasing liability !especially in regard to leased assets that are not capitali ed&. The report displays for each leased asset'

( The payments already made ( The payments due up to the date of the report ( The total lease payments to be made for the asset )ou can create a totals list with cumulative values for each fiscal year and company code. #n order for the report to wor. properly, you must ma.e sure that the following leasing conditions are properly maintained in the asset master record' ( Start date of the lease ( -ayment information !lease payment amount, payment cycle, number of payments& ( Leasing type 5sing 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.

I$ple$entation Considerations
%eneral Tips #f you want to manage capitali ed leased assets in the system, follow these steps' ( Define leasing types in 0ustomi ing for Asset Accounting with the specifications for posting asset acquisitions. ( 0reate special asset classes and account allocations for your leased assets. ( Define depreciation areas, in which you plan to capitali e leased assets using the capital lease procedure, so that they manage interest that can be posted with the depreciation posting program. ( %ctivate the depreciation areas, in which the leased assets will be capitali ed and depreciated, in these asset classes. ( %ssign a leasing type to the asset master records for leased assets. ( +aintain the information and conditions of the leasing agreement in the master records of the leased assets. Specify an interest rate for calculating the present value and determine whether the lease payments should be made at the beginning of the payment period or at the end of the payment period. ( -ost the acquisition of a leased asset with the display transaction for asset master data.

Acquisition of Leased Assets

Purpose

The "acquisition of a leased asset" is considered for our purposes to e the entry of the leased asset in the !"#$$ %ystem. This does not necessarily mean that the leased asset must e capitalized. &ou can enter a leased asset simply to manage purely statistical data. &ou handle the leased asset as a master record' with no (alues in the oo) or tax depreciation areas. Posting the acquisition of a leased asset may e necessary for one of the following reasons: &ou ha(e recei(ed a new leased asset *goods receipt+. &ou need to change the way oo))eeping is handled for a leased asset due to a change in the conditions of the lease. &ou need to post a leased asset to a new asset master record due to a transfer.

Process Flow
,efore posting the acquisition of the leased asset' you must determine the oo))eeping method to e used' either: Capitalization of the leased asset to fixed assets' with the present (alue of the future lease payments and depreciation of the present (alue *capital lease+ %tatistical management of the leased asset *no capitalization+' and direct posting of the lease payments as rental expense in the profit and loss statement *operating lease+

Procedures
Posting the $cquisition of Leased $ssets *Capital Lease+ Procedure $nalyze the lease according to the data required for (aluation: $mount of the lease payments *net' without input tax+ -um er of payments Payment cycle Pre#payment or post#payment

.. /etermine the cost#accounting interest rate for determining the present (alue *leasing factor+. 0. Create the leased asset: Choose an asset class' in which the depreciation areas for oo) depreciation and tax depreciation are oth acti(e. %et up the corresponding field group in the asset master record for data rele(ant to leased assets *lease data' leasing partner+. &ou can also enter additional statistical data regarding the leasing contract. "n the same field group' enter a leasing type for assets leased under the capital lease method. 1aintain the specifications for the depreciation area in the asset master record. "t is especially important to enter the appropriate depreciation )ey *for example' L2$%+. 3. Choose Asset Display Asset

in the menu. 0hoose the function Opening posting in the master record screen for leasing information. This function automatically creates the acquisition posting by 0apitali ing the leased asset with the present value of the lease payments 0reating the liabilities for the lease payments !with their due dates&

Posting the $cquisition of Leased $ssets *Operating Lease+ $nalyze the lease according to the data required for (aluation:

$mount of the lease payments *net' without input tax+ -um er of payments Payment cycle Pre#payment or post#payment

.. Create the leased asset: Choose an asset class' which has no acti(e depreciation areas' or in which only the cost# accounting area is acti(e. %pecify the conditions of the lease in the asset master record. This data is required in order to e(aluate the leased assets using the corresponding standard report. 2nter a leasing type for the operating lease method. 1aintain the specifications for the depreciation area in the asset master record. "n particular' ma)e sure that only the cost#accounting depreciation area is acti(e *no oo) or tax depreciation+. 0. Post the asset acquisition using a transaction type that only posts to cost#accounting depreciation areas *4.4+. 3. "f necessary' post one#time payments as 5de it of in(oice # line item' credit to (endor6 (Accounting Financial Accounting Accounts payable).

#n the 1eneral Ledger menu, manually create a recurring document for the lease payments according to the conditions of the lease !Postings Reference document Recurring
document)

Lease Payments
Purpose
7egardless of whether the lease is treated as a capital lease or an operating lease' you are required to pay the periodic lease payments to the lessor *(endor+. "n the case of a capital lease' the corresponding lia ilities are created within the framewor) of the opening posting. The offsetting account for the posting to the (endor is the asset control account. !or leased assets that are not capitalized' you need to create an appropriate recurring document.

Procedure
Posting Lease Payments

:. 0hec. whether you have carried out the appropriate opening postings for all leased assets that require capitali ation !see -osting the %cquisition of Leased %ssets !0apital Lease&&. @. 0hec. whether you have created the appropriate recurring documents for all leased assets that are handled as operating leases,. 7. Start the payment program in "inancial %ccounting. !See the documentation for the "inancial %ccounting !"#& component in the S%- library&.

Asset Retirement for Leased Assets

Purpose
$ leased asset can e retired for one of the following reasons: The lease expired or was canceled ahead of time. The leased asset had to e scrapped.

Change in the Conditions of the Lease

There are two different cases that affect assets: The changes in the conditions of the lease allow for changing an asset that was capitalized *capital lease+ to non#capitalized *operating lease+. The asset remains capitalized' ut the payment conditions ma)e a new (aluation of the leased asset necessary.

Process flow
"n oth cases' you are required to retire the leased asset and then post an acquisition to a new asset master record.

Procedures
Processing the 2xpiration of the Lease Chec) whether the leased asset was capitalized *capital lease+. "f the leased asset was not capitalized' all you need to do is delete any asset master record that may ha(e een created for statistical purposes. $s far as $sset $ccounting is concerned' you do not ha(e to carry out any other acti(ities. 8owe(er' you must close the rental agreement in !inancial $ccounting.

"f the leased asset was capitalized' determine if the asset is eing purchased' or if it is eing
returned. "f the asset is eing purchased' carry out an asset transfer *see Posting the %plitting or 1o(ing of an $sset+. "f the asset is eing returned' post an asset retirement.

"f the lease is canceled ahead of time' you must re(erse the corresponding future lia ilities that are
due. %crapping a Leased $sset Ta)e into account any possi le insurance enefits. 7e(erse the recurring document for the payment of the lease installments. Post an asset retirement.

Posting an Intracompany Asset Transfer (Splitting an Asset

Procedure
Choose Postings Transfer Intracompany transfer. 8nter the asset to be transferred. 8nter the asset, to which you want to transfer, in the Transaction data tab page. 4r create a new asset for this purpose using the New asset function. 0hec. the date specifications, and ma.e any necessary entries there. #f you do not enter an asset value date, the system automatically determines this date when you save. +a.e sure that the target asset manages the same depreciation areas as the original asset. 8nter or chec. the additional posting information !such as document type& and the transfer variant on the Additional details tab page. #n the standard system, the system uses transfer variant E for intracompany asset transfers. To post a partial transfer, enter a posting amount, a percentage or a quantity on the Partial

transfer tab page. Specify whether the transfer applies to prior$year acquisitions or to current$year acquisitions. #f you do not ma.e any entries on this tab page, the system carries out a complete transfer. 8nter a text for the posting document on the Note tab page, if you wish. Save. The system carries out the transfer. The system automatically determines the transaction types from the transfer variant used.

"or partial transfers, ma.e sure you transfer acquisitions from prior years separately from acquisitions in the current fiscal year.

5sing this transaction, it is not possible to' +anually enter different amounts for different depreciation areas Have the system propose depreciation areas for certain transaction types #f you need to use one of these functions, then use transaction %F5+.

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Process Flow
The Capital Lease !ethod
9. &ou first Create an $sset for the Capital Lease 1ethod' for which oo) depreciation' costing and group depreciation areas are acti(e. .. &ou then 2nter the Opening 2ntry for your asset' thus capitalizing the present (alue of the future lease installment payments as the acquisition (alue. 0. To analyze the posting on your asset' you can /isplay the $sset in the $sset 2xplorer. &ou should note the document num er of the financial accounting document. 3. To display the paya les to the (endor' as well as the corresponding payment installments on the due dates' you /isplay the :endor.

The !i"ed !ethod 9.

&ou first Create an $sset for the 1ixed 1ethod' for which only the group areas are acti(e. .. &ou then 2nter the Opening 2ntry for your asset. The present (alue of the future lease installment payments is posted only in the group areas. 0. To analyze the posting on your asset' you can /isplay the $sset in the $sset 2xplorer. The system does not generate a financial accounting document' as this posting is only rele(ant for asset accounting. 3. &ou post the paya les to the (endor and corresponding payment installments manually in financial accounting. This is est achie(ed y creating a recurring entry document. *;e do not demonstrate this here.+

The #perating Lease !ethod

9. &ou first Create an $sset for the Operating Lease 1ethod' for which no depreciation areas are acti(e. .. &ou then /isplay the Leasing Lia ilities.

Sample transactions'

Creating an Asset for the Capital Lease !ethod

:. Call up the transaction as follows:
!enu Path Accounting Financial Accounting Fixed Assets Asset Create Asset $%49

Transaction

@. 2nter the following data:

Field $sset class Company code -um er of similar assets 0. Choose 3. On the . eneral ta page' enter a description for your asset. $ata <449 9444 9

=. Choose the Time!dependent ta page' then enter usiness area >>44.

9. Choose the "easing ta page' then enter the following data:

Field Leasing company $greement num er $greement date -otice date %tart /uration Type ,ase (alue as new Purchase price -o.lease payments Payment cycle Lease payment $nnual rate of interest $ata 9444 9.03= 49.49.9>>> 4?.09..440 49.49.9>>> 3 L9 =3444 94444 3? 9 9444 @.=

@. Choose . The system calculates the present (alue of the asset and enters this in the Present #alue field. ?. Choose .

>. -ote the num er of your asset. 94. Choose .

Creating an Asset for the #perating Lease !ethod

:. Call up the transaction as follows:
!enu Path Accounting Financial Accounting Fixed Assets Asset Create Asset $%49

Transaction

@. 2nter the following data:

Field $sset class Company code -um er of similar assets 0. Choose 3. On the . eneral ta page' enter a description for your asset. $ata <444 9444 9

=. Choose the Time!dependent ta page' then enter usiness area >>44.

9. Choose the "easing ta page' then enter the following data:

Field Leasing company $greement num er $greement date -otice date %tart /uration Type $ata 9444 9.03= 49.49.9>>> 4?.09..440 49.49.9>>> 3 L9

,ase (alue as new Purchase price -o.lease payments Payment cycle Lease payment $nnual rate of interest

94?444 .4444 3? 9 .444 @.=

@. Choose . The system calculates the present (alue of the asset and enters this in the Present #alue field. ?. Choose the Deprec. areas ta page' then select the "Deact$ field for depreciation areas 04 and 09. >. Choose .

94. -ote the asset num er. 99. Choose .

Creating an Asset for the !i"ed !ethod

:. Call up the transaction as follows:
!enu Path Accounting Financial Accounting Fixed Assets Asset Create Asset $%49

Transaction

@. 2nter the following data:

Field $sset class Company code -um er of similar assets 0. Choose 3. On the . eneral ta page' enter a description for your asset. $ata <444 9444 9

=. Choose the Time!dependent ta page' then enter usiness area >>44.

9. Choose the "easing ta page' then enter the following data:

Field Leasing company $greement num er $greement date -otice date %tart /uration Type ,ase (alue as new Purchase price -o.lease payments Payment cycle Lease payment $nnual rate of interest $ata 9444 9.03= 49.49.9>>> 4?.09..440 49.49.9>>> 0 L9 0.444 @444 04 9 ?=4 @.=

@. Choose . The system calculates the present (alue of the asset and enters this in the Present #alue field. ?. Choose .

>. -ote the num er of your asset. 94. Choose .

%ntering the #pening %ntry

Procedure
:. Call up the transaction as follows:
!enu Path Accounting Financial Accounting Fixed Assets Asset Display Asset $%40

Transaction

@. 2nter the following data:

Field $sset %u #num er Company code 0. Choose . $ata &our asset num er 4 9444

3. Choose the "easing ta page. =. Choose %pening Posting. <. Choose .

Result
The Capital Lease !ethod
The system capitalizes your asset with the present (alue. The system also posts the payment installments on the rele(ant due dates to the (endor. The financial accounting documents are generated automatically.

The !i"ed !ethod

The system capitalizes your asset in the group depreciation areas with the present (alue.

The #perating Lease !ethod

-o opening posting is required for this type of acquisition' ecause the asset is only recorded statistically

$isplaying the Asset in the Asset %"plorer

:. Call up the transaction as follows:
!enu Path Accounting Financial Accounting Fixed Assets Asset Asset &xplorer $;49-

Transaction Code

.. The system displays the current (alue and the transactions for your fixed asset. "f your asset is not displayed' enter the asset num er' then choose . 0. "n the center of the screen' you can see information a out the planned (alues' the posted (alues or the parameters of your fixed asset. To switch to an alternati(e (iew' choose the appropriate ta page. 3. $t the ottom of the screen' you see the transactions for your asset. !or example' the goods receipt' acquisitions' and retirements. To display the !" document for a transaction' select the transaction' then choose . =. $ll of the (alues displayed refer to one fiscal year and to one depreciation area. To display the (alues of a different fiscal year' choose or enter the year directly. <. To display the (alues of a different depreciation area' in the na(igation area on the left side of the screen' choose the area you would li)e to see. Ta)e a closer loo) at the asset' especially the effects of your posting. @. Choose .

$isplaying the &endor

:. Call up the transaction as follows:
!enu Path Accounting Financial Accounting Accounts Payable Account Display'C(ange "ine Items !,L9-

Transaction

@. 2nter the following data:

Field $ata

:endor account Company code Open items 0. Choose .

9444 9444 Today5s date

3. &ou see a list of all open items for the selected )ey date. =. The document num er you noted in the pre(ious process step identifies the open items created y the opening entry. <. /ou le#clic) on any two documents. -ote that the aseline date is different in each case. @. Choose .

$isplaying the Leasing Lia'ilities

:. Call up the transaction as follows:
!enu Path Accounting Financial Accounting Fixed Assets Info )ystem Reports on Asset Accounting *alance )(eet &xplanations International "iabilities From "easing Agreements %A$L7A?@499>>.

Transaction Code

@. 2nter the following data:

Field $sset num er 7eport date 0. Choose 3. Choose . . $ata &our asset num er 09st /ec. of su sequent year