IJ12468: INCORRECT LEASE CLASSIFICATION WHEN PURCHASE OPTION IS INCLUDED IN TERM

10.6.0-TIV-PDM-FP003-README
10.6.0-TIV-PDM-FP003

APAR status

• Closed as fixed if next.

Error description

• Problem type:
  Application â “ Real Estate Manager- Lease â “ Classification
  
  Reported and Reproduced in Product Version:
  10.5.3.0 and impacts 10.5.3.1,10.5.3.2, 10.5.3.5,10.6.0.0 Check
  release notes after 10.6.0.0 for resolution.
  
  Problem Title:
  Incorrect Lease Classification when purchase option is included
  in term
  
  Symptom/Description:
  The FASB Treatment asks the question about if the Lease has a
  Bargain Purchase Option. A Bargain purchase option is not the
  same thing as a purchase option that is reasonably certain.
  A bargain purchase option is known at Commencement Date of the
  Lease. A purchase option might not be reasonably certain at
  commencement date, but become reasonably certain at a later
  date.
  A purchase option should work the same as a renewal of rent. It
  should add the purchase option to the last FLI and use that
  Total Rent in the FASB Treatment section.
  
  Steps to Reproduce:
  â ¢	Create a lease with payment schedules, purchase option.
  â ¢	Under FASB Treatment switch condition â œIs Cost or Fair
  value determinable⠝ to yes and then activate the lease.
  â ¢	Revision- Change in assessment. Now add purchase option
  during modification.
  â ¢	The Operating Schedule shows the rent from Mod date to the
  end of the lease (including purchase option). The Summary
  Schedule shows the ASC 842 rent
  â ¢	EVEN IF THE TOTAL RENT (INLCUDING PURCHASE OPTION) DIVIDED
  BY FMV IS LESS THAN 90%, THE LEASE SHOULD STILL BE A FINANCE
  LEASE BASED ON THE GUIDANCE
  
  Expected fix in version:
  Reported in 4Q2018. A fix has yet to be determined and we are
  unable to project a target at this time.
  
  Expected Fix Description:
  when the Purchase Option is reasonably certain, Lease
  classification should change to Finance.  FASB Treatment should
  include the purchase price in Total Rent in FASB Treatment
  
  Key Words:
  Total Rent, Residual Value Guarantee(RVG), Operating Schedule,
  Accounting Tab
  
  Work-Around:
  None
  

Local fix

Problem summary

• For ASC 842 the 'Lease Classification' will now be Finance even
  if the 'Lease Treatment' is Operating, when there is a
  reasonably certain Purchase option included in the Lease Term.
  This issue will be resolved in our next major release version,
  which is tentatively planned for 1H 2019.
  

Problem conclusion

Temporary fix

Comments

APAR Information

• APAR is sysrouted FROM one or more of the following:

• APAR is sysrouted TO one or more of the following:

Fix information

Applicable component levels