Modifying contractual factors

As a lease accountant, you can modify contractual factors, such as incremental borrowing rate, dismantle cost, rent component assumptions, residual value guarantee, or perform partial, full, or IFRS reversal impairment.

1. Open an existing lease and click on Accounting Revise.
2. On the RE Contract Revision form, set the Change Type = Contractual Factors and select a Fiscal Period from which the modification effective period should be affected.
3. You can perform the following modifications on the lease.

   Modifications	Steps
   Update Incremental Borrowing Rate	On the Borrow Rate & %Growth Assumptions section, enter a new Incremental Borrowing Rate. If the Local Reporting tab in enabled, there will be two Incremental Borrowing Rate fields, one is for GAAP and another is for IFRS. Click Continue.
   Update Dismantle Cost	On the Details section, enter an amount for Dismantle Cost. Click Continue. Note: The Dismantle Cost of an IFRS lease is included as part of the ROU asset at the modification. It does not affect liability. For GAAP and GASB lease, the Dismantle Cost is included as part of the net rent of the last fiscal period, therefore it affects the liability of the lease.
   Update Initial Direct Cost	On the Details section, enter an amount for Initial Direct Cost. Click Continue. Note: The Initial Direct Cost will be included as a part of the opening asset at the modification date. For GASB 87 Lessor accounting lease, Initial Direct Costs Expensed are excluded from the accounting calculations.
   Update Rent Component Assumptions (available only for gross lease)	On the Rent Component Assumptions section, update the new percent on the fields available. Click Continue.
   Perform Partial Impairment	On the Details section, check GAAP Impairment and/or IFRS Impairment check-box and enter a Fair Market Value and/or IFRS Impairment Amount. For GASB, it is Remaining Service Utility field. Click Continue. Note: For Partial Impairment, the entered amount will be compared with the ending Net Asset of the selected Fiscal Period. For GASB 87 Lessor accounting lease, Partial Impairment is not applicable.
   Perform Full Impairment	On the Details section, select the Full Impairment check box (new FMV is 0). Click Continue. Note: All the fields related to calculate the new blended rate will remain the same. No new blended rate will be calculated. For GASB 87 Lessor accounting lease, Full Impairment is not applicable.
   Update Residual Value Guarantee	On the Details section, enter a new Residual Value Guarantee and answer the question, Is it reasonably certain that the Residual Value Guarantee will be paid?. Click Continue. Note: When you do Accounting Revise > Contractual Factors and update the Residual Value Guarantee on a GAAP/GASB index lease, the variable payment that is resulted from the increased/decreased of index becomes a fixed payment. Also, when there is a probable Residual Value Guarantee and Is it reasonably certain that the Residual Value Guarantee will be paid? is checked, the Interest expense of the Residual Value Guarantee and its liability are re-calculated and captured on the Fiscal Line Item from the selected period to the end of the lease term. The Residual Value Guarantee is not applicable for GASB 96 Subscription Based IT Arrangement (SBITA).
   Perform Reversal Impairment	This option is available only when the IFRS lease had been impaired and it is not applicable for GAAP/GASB. On the Details section, select the IFRS Reversal Impairment check box and enter the Recoverable Amount. Click Continue. Note: The Reversal Impairment cannot be performed on the same period as the impairment. All the fields related to calculate the new blended rate will remain the same. No new blended rate will be calculated.
   Perform Abandonment	On the Details section, check the Abandonment check box and enter an Abandonment Date. Click Continue. The Decommission Date on the Schedule Summary section will be populated. Note: The Abandonment Date must be prior to the Likely Expiration Date. Also, all the fields related to calculate the new blended rate will remain the same. No new blended rate will be calculated. The remaining ROU asset is amortized straight-line to the Decommission Date for both Operating and Finance leases. For GASB 87 Lessor accounting lease, Abandonment is not applicable.
   Perform Abandonment Reversal	On the Details section, uncheck the Abandonment check box. The Abandonment Date will be cleared. Click Continue. The Decommission Date on the Schedule Summary section will also be cleared. Note: The selected Fiscal Period must be prior to the Abandonment period. The Abandonment Reversal cannot be performed on the same period as the abandonment. Also, all the fields related to calculate the new blended rate will remain the same. No new blended rate will be calculated. The remaining ROU asset continues to amortized straight-line to the lease term for both Operating and Finance leases. For GASB 87 Lessor accounting lease, Abandonment Reversal is not applicable.

   While performing these modifications, you do not need to re-classify the lease.
4. Review all the information and click Recalculate Accounting Schedules.
   The status is changed to Processing.
5. Once the lease is back to Revision Accounting In Review status, review the accounting schedules.
   Note: When an Index lease is modified using Accounting Revise > Contractual Factors and the Residual Value Guarantee is updated, the Variable Lease Payment column on Operating/Finance schedule will be cleared on the modification period onwards. The variable payment becomes a fix payment at this point.
6. If everything is good, click Activate. The lease event JEs will be created along with a draft lease event contract summary balance record. It stores the functional currency amounts of lease event JEs for the current open period. The contract summary balance record can be accessed on the Contract Summary Balance section of the History tab of a lease.