How to process a Lease contract in Enterprise Management?

8 minute read time.

Lease contracts function is used to manage the lease contracts, whether recorded by direct entry or from an import.

Lease contracts cover both lease-type contracts and long-term rent-type contracts. Each contract may concern one or several assets that the company is renting.

This function can be used to create, modify, delete (under certain conditions) a contract and print the contract record.

It is also used to enter the funding open item schedule, update the contract characteristics, manage the purchase option exercises, record the terminations and end of contract, and view the assets for which the contract applies.

Let’s look at the steps to generate a contract and post it.

  1. In Fixed assets, Funding, Lease contracts, Lease contracts (GESLEA) generate a lease contract. 
    1. In Development, Data and parameters, Development setup, Activity codes, LEA activity code must be active.
    2. Fill in the mandatory fields under Main tad (help is available at the bottom of this article).
    3. Fill in the open item schedule under Open item schedule tab.
  2. In Fixed assets, Fixed assets, Assets (GESGAS) create an asset and assign the lease contract.
    1. Click New.
    2. Enter a description and purchase date.
    3. Set the holding type as ‘Leased’.
    4. Select the accounting code.
    5. Assign the above lease contract to the asset under Allocations tab, Funding grid.
  3. Once you determine that the contract can be finalized change the Lease contract status to ‘In process’.
  4. Run the Generation of Fee events necessary to generate the accounting documents in Fixed assets, Funding, Lease contracts (LEAPAY).
    1. You can run this in simulation first and then in actual mode after that.
    2. Select the company and the site(s).
    3. In parameters tab select the open item from and to dates, consolidated accounts from and to dates.
    4. Under extended selection tab select the lease contract by the LEAREF filed (you can use any other fields in the LEASE table to easily filter your lease contract).
    5. You can see a lease creation event under status of context for the IAS/IFRS depreciation plan.
  5. Run the Generation of accounting entries in Fixed assets, Processings, Accounting interface.
    1. Select the fiscal year, Company, Sites, and the accounting entry type LEACRTIAS.
    2. Check the generated journal under accounting entries.                    
    3. IAS ledger – Dr. Fixed assets and Cr. Loan a/c.
    4. In Reports, Reports, Reports, use the LISLEA to print the lease contracts.

 Fixed assets, Funding, Lease contracts, Lease contracts

Fixed assets, Fixed assets, Assets

 Fixed assets, Funding, Lease contracts, Lease contracts

Events screen - Showing the lease contract creation.

Fixed assets, Funding, Lease contracts, Generation of Fee events 

Status of context - showing the lease event LEACRT.

Fixed assets, Processings, Accounting interface,Generation of accounting entries - LEACRTIAS.

Accounting entry - IAS ledger.

Report parameters

Report showing the list of lease contracts.

Lease contract events screen after GL posting.

Line 2 in Red indicates that it has been posted.

  • To record an end of the contract.
    • In the lease contract screen click on the Actions menu ‘Record the end of contract’
    • Only available when the status is ‘In Process’.
    • Note: contract end date must be less than or equal to the next fiscal year end date of the accounting and fiscal context.
    • This action leads to the modification of the contract status = Completed and the recording of the contract end date.
    • This records an event called End of contract LEAEND.
    • This recording of the contract end date cannot be cancelled.

  • Other conditions:
    • Deleting a lease contract is prohibited, if the contract status is To be validated and assets are linked to it. Or the contract status is in process.
    • Deletion of a contract with the status Terminated or Complete leads to the release of the financial assets attached to it.

 

Field help for some of the fields in the Main and in the open item schedule tabs of the lease contract.

Main Tab

Status:

When creating a contract, its status automatically takes for value ‘To validate’. The assets can be attached to it, but it must not be the object of any action.

Once the user believes that the contract definition is finalized, lease contract process can be changed to ‘In process’.

Going from the status To validate to In process, either in creation or in modification, results in generating a contract creation event (LEACRT).

And this event will generate postings to GL journal LECRT.

Contract creation designed for the IFRS consolidated accounts.

Additionally, a contract with the status In process cannot be deleted. It cannot be directly modified either. It can only change at the end of the different actions applied to the contract.

Other values,

Complete – after implementing the action Enter the contract end.

Buyback – after implementing the action Remove the purchase option.

Terminated – after implementing the action Terminate the contract.

Contract Type:

This field is used to specify if the type of the contract is Lease or Long-term rental.

This information can no longer be modified, even though the contract has the status To validate, once an asset is assigned to the contract.

Certain information such as Capital amount, Buyback value Purchase option removal date are only entered if the contract type is Lease.

Lessor:

This is mandatory information. It is the organization which entered into the lease contract. The lessor must be identified as the Supplier.

Bal sht line:

This field is used to enter the balance sheet line involved in the financial lease contract. This information is used for editing the summary reports.

Following tables are used for this LEALIA Leasing commitments and LEARNTDPR Leasing charges and depreciations. They indicate the global situation of the lease contracts, grouped and ordered by balance sheet lines.

It is mandatory that the balance sheet line be entered for the contract values to be considered in these tables.

Source:

This field is used to specify the origin of the contract. It can be either a new contract or a transferred contract.

Nature:

This field is used to specify the nature of the lease contract (fixed assets or movable assets).

Start date:

This field is mandatory, and it can only be changed when the contract has the status ‘to be validated’.

Note; when you modify the date, it will delete the financials payment schedule.

Additionally, when the contract is for company vehicles and the registration number is entered, it will update the lease start date (Fixed assets screen option vehicle).

End date:

The end date for the contract is mandatory. It can be changed when the status is set to ‘to be validated’.

When the status is ‘in process’, this date can be updated via the update contract action.

It can also be updated during the use of the record end of contract action.

If the new date is less than the previous date, leads to the deletion of the financial payment schedule for the dates later than the new date entered.

If the contract involves company vehicles with registration numbers are provided, it also leads to the update of the lease end date.

Accounting code:

The accounting code is mandatory. It is used to define the CoA and IAS/IFRS accounts to be posted when generating the accounting entries related to the lease contract.

When the status is in process it can be updated via the update the contract action.

Company currency:

This field is used to enter the contract financing currency. It can be edited if the contract status is to validate.

Borrowed capital:

It is mandatory that the borrowed capital amount should be entered if the contract type is Leasing.

This amount is entered in the contract financing currency.

If the contract status is in process, this amount can only be updated using the Revise the contract action.

You can view the different revisions of the borrowed capital.

Buy-back value:

This field is used to enter the buyback price of the assets(s), at the end of the leasing period during the removal of the purchase option planned for a lease contract.

This amount expressed in the financing currency of the contract.

It can be updated on a contract status set in process, either through the action Update the contract/ Lift purchase option.

Open item schedule.

Period start:

The period start date and end date must be entered. The following period start dates are calculated by adding a day to the previous period.

Period end date:

The end dates of the next periods are automatically defined as follows.

If the period end date corresponds to the last day of a month, the end date of each of the following periods will correspond to the last day of a month.

If the end date of the first period does not correspond to the last day of a month, each created period end date will end with the same day as the first period.

Remaining for reimbursement:

This field displays the amount of capital to repay at the beginning of the period concerned by a leasing contract payment.

The balance to repay of the first payment is loaded by default with the capital amount of the leasing contract. It can be modifiable.

The balance to repay of the following payments equals the capital amount of the leasing contract minus the financial depreciations of the previous payments.

Rental amount:

This field contains the amount of the charge due for the rental of the assets referenced in the financial lease contract. It is expressed in the contract financing currency.

This rental charge corresponds to the increased financial depreciation for the financial costs in the period.

The sum of the bases of the assets linked to the contract must necessarily be lower or equal to the total of the contract charges.

Financial Deprecation:

This field enables the user to enter the amount corresponding to the capital refund.

It is mandatory if it’s a leasing contract.

Financial cost:

Is automatically defined by the application. It is equal for a given period, to the amount of the fees minus the amount if the financial amortization.

It can be modified by the user.

Rapid capital:

This amount is automatically calculated according to the following formula:

Reimbursed capital for the previous period + Financial depreciation for the current period.

It can be modified by the user.

Invoice date:

This field enables the user to enter the date of the invoice.

When a date is entered, the open item is not considered by the Fee event generation process.

Invoice ref.

This field enable the user to enter the description of the invoice.

When a reference is entered, the open item is not considered by the Fee event generation process.

GL account:

This check box cannot be entered by the user, it is automatically activated when the annual fee events dealing with the open item and designed for the CoA accounting have been generated.

IFRS account:

This check box cannot be entered by the user. it is automatically activated when the annual fee events dealing with the open item and designed for the CoA accounting have been generated.