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EAM: Leasing Transition Questions For ASC 84207/16: (Doc ID 2451585.1)

Last updated on SEPTEMBER 25, 2018

Applies to:

PeopleSoft Enterprise FIN Asset Management - Version 9.2 and later
Information in this document applies to any platform.

Goal

We are testing the new leasing accounting functionality (ASC 842). We have some questions on what Oracle's recommendation and/or guidance is regarding accounting transition to the new ASC 842 standards as it relates to the initial accounting adjustments that must be made. Please review the following questions.


Accrued Rent:

1) Accrued Rent is the accumulated difference between the cash payments and the straight-line rent expense. The balance may be a positive (debit) or negative (credit) balance. This should be part of the entries to Rent Expense. How do we account for this adjustment to the ROU Asset at the point of implementation?

2) Carrying amount of the liability recognized under ASC 420: This is a liability that is recognized when we vacate a location that is a noncancelable lease. It is the sum of the future lease payments. The expense is recognized when the liability is recorded as opposed to when the payments are made. How do we account for this adjustment to the ROU Asset at the point of implementation?

Business Combinations:

3) We have intangible lease balances to account for favorable or unfavorable lease terms at the time that the entity was acquired. This may be a positive (debit) or negative (credit) balance. It should be amortized on a straight-line basis over the remaining term of the lease. Should we use the payment schedule functionality (similar to a tenant improvement allowance) for this adjustment to the ROU Asset at the point of implementation? Will the system accept a negative amount? Can this be recorded to a different P&L account than Rent Expense?

Prepaid Rent:

4) We have one lease for which the payments are made annually and we recognize the expense on a monthly basis. The next payment will be made in December 2018.
How do we ensure this is part of the adjustment to the ROU Asset at the point of implementation? Will the system properly account for this in future years based on the payment schedule?

Impairment:

5) For us, this will occur when we vacate a location that is a noncancelable lease and there either isn’t a market to sublease the location or the market value of the sublease is less than what we pay to the Lessor. The amount of the impairment may bring the ROU Asset to a zero balance or leave a residual balance.How do we account for this adjustment to the ROU Asset?

Solution

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Goal
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