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Lease Accounting Example – ASC 842 Accounting Lease Standards and PeopleSoft Lease Administration

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Deep Dive Blog Series: Part 2 of 5

Hello again everyone. This is now part II of a five-part series that I have devoted to the new lease accounting standards. This part will discuss a basic lease accounting example to compare the current standards to the new standards. For your reference, here is the complete list for the 5-part series:

  1. Blog series introduction and New lease accounting terminology
  2. Basic lease accounting example
  3. Expanded lease accounting discussion – I
  4. Expanded lease accounting discussion – II
  5. Blog series wrap-up & next steps

Let’s just jump straight in and do a walk-through on a basic lease accounting example to compare the current accounting standards to the new accounting standards.

Property Lease: 3 years
Yearly Payments: $150,000, $180,000, $210,000 = Total – $540,000
Borrowing interest rate: 9%

Current Lease Accounting Standards

Using the current accounting standards for this lease using straight-line accounting would be $180,000 for each year. Under the current rules there would not be an asset on the balance sheet and the disclosure for future minimum lease obligations for years 1 & 2 would be $390,000 & $210,000 respectively.

Looking at the current accounting standards, the table below summarizes key accounting data. This includes disclosures for future minimum lease obligations. Notice that current lease accounting standards do not specifically require the value of the operating lease asset(s) be capitalized on the balance sheet.

Operating Lease under the current Lease Accounting Standards
Year Cash Payments Straight Line Accrual/Deferral Total Rent/Lease Expense Future Minimum Lease Obligation Capitalized Asset Value
1 $150,000 $30,000 $180,000 $390,000 n/a
2 $180,000        — $180,000 $210,000 n/a
3 $210,000 ($30,000) $180,000          — n/a
 
Total $540,000        — $540,000          —                —

Future Lease Accounting Standards with ASC 842

With the future accounting standards leases, there will be a test with five key criteria. Depending on the outcome of these tests, the lease will be classified as either a finance lease or as an operating lease. Just to confirm, later in the series I will cover the criteria tests in a bit more detail but for now let’s just focus on the accounting. I will then use the same lease payment information from above, including the borrowing interest rate to illustrate the key accounting data for this classified as both as either a finance lease and as an operating lease.

Looking at the table below in column 2, we still have the same lease payments as we used in the old accounting standards example above. Notice with the new standards a liability needs to be maintained on the balance sheet for both classifications, as shown in columns 3 & 4.

Finance Lease

If the lease is to be classified as a Finance Lease, the lease expense will be broken down into interest expense and amortization expense, columns 6 & 7. With the net balance of the asset on the balance sheet amortized each year as shown in columns 5 & 7.

Operating Lease

If the lease is to be classified as an operating lease, the lease expense will be a straight-line amount as shown in column 10. The adjusted balance of the asset on the balance sheet is shown in column 8 and Column 9 displays the adjustment amount which utilizes the borrowing interest rate as part of the adjustment.

Lease Information
1 2 3 4
End of Year Payments Lease Liability Liability

Paydown

0 $450,000
1 $150,000 $341,177 $108,823
2 $180,000 $192,395 $148,782
3 $210,000          — $192,395
 
  $540,000

 

Classified as Finance Lease
5 6 7
End of Year Right of Use Asset (Net) Interest Expense Amort Expense
0 $450,000
1 $300,000 $41,177 $150,000
2 $150,000 $31,218 $150,000
3          — $17,606 $150,000
 
  $90,000 $450,000

 

Classified as Operating Lease
8 9 10
End of Year Right of Use Asset Adjustment to Right of Use Asset Lease Expense
0 $450,000
1 $311,177 $138,823 $180,000
2 $162,395 $148,782 $180,000
3          — $162,395 $180,000
 
  $540,000

As we can see with the old standard, disclosing the future minimum lease obligations is key and with the new standards, there will be rules for tracking the liability directly on the balance sheet. For tracking the lease expense and the asset balances, there will be different rules depending on how the lease is classified.

As part of my research on the new lease accounting standards I have read many publications on the topic, some of which were several hundred pages long. This blog is just meant to illustrate a very straight forward and simple example to highlight the new accounting balances that will be supported and tracked with PeopleSoft Lease Administration. Stay tuned for my next blogs where I will take an expanded look on the new lease accounting standards and discuss more in-depth lease examples.

Thank you for reading and be sure to read our other Lease Administration Blogs.

Steven Brenner, CPA
Senior Principal Consultant
MIPRO Consulting

Time and Pay Fluid Pages

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Did you know there are 34 delivered HR Time and Pay Fluid Pages? These cover Absence Management, Time and Labor Self-Service and Time and Labor Manager Self-Service. Below is a list of the delivered content for HCM Time and Pay Fluid Pages. The links will take you directly to the PeopleBooks page describing the content.

Application / Product Fluid Page Classic Page (Replaced or Counterpart) Image Delivered
Absence Management Request Absence Page Request Absence Page Image 9
Absence Management View Requests Page Absence Request History Page Image 9
Absence Management Details Page Request Details Page Image 9
Absence Management Balances Page View Absence Balances Page Image 9
Absence Management Cancel Absences Page Cancel Absence Page Image 19
Absence Management (Fluid Approvals) Pending Approvals – Absence Request Page Image 20
Absence Management (Fluid Approvals) Pending Approvals – Cancel Absence Page Image 20
Time and Labor (Employee Self Service) Report Time Page Timesheet Page Image 9
Time and Labor (Employee Self Service) Report Leave Page Image 9
Time and Labor (Employee Self Service) Weekly Time Page Image 9
Time and Labor (Employee Self Service) Payable Time Page Image 9
Time and Labor (Employee Self Service) Leave Balances Page Image 9
Time and Labor (Employee Self Service) User Preferences Page Image 9
Time and Labor (Manager Self Service) Team Time Page Image 14
Time and Labor (Manager Self Service) Manage Exceptions Page Image 14
Time and Labor (Manager Self Service) Reporting Locations Page Image 16
Time and Labor (Manager Self Service) Workforce Availability Page Image 17
Time and Labor (Manager Self Service) Scheduled Daily Page Image 17
Time and Labor (Manager Self Service) No Show Daily Pages Image 17
Time and Labor (Manager Self Service) Schedule Deviation Daily Pages Image 17
Time and Labor (Manager Self Service) Not Scheduled Daily Page Image 17
Time and Labor (Manager Self Service) Elapsed Daily Page Image 17
Time and Labor (Manager Self Service) Away From Work Daily Category Image 17
Time and Labor (Manager Self Service) Unapproved Absence Daily Page Image 18
Time and Labor (Manager Self Service) Approved Absence Daily Page Image 18
Time and Labor (Manager Self Service) Training Daily Page Image 18
Time and Labor (Manager Self Service) Comp Time Off Page Image 18
Time and Labor (Manager Self Service) Weekly Time Views Image 18
Time and Labor (Manager Self Service) Workforce Availability – Scheduled Weekly Page Image 18
Time and Labor (Manager Self Service) Schedule Deviation Weekly Page Image 18
Time and Labor (Manager Self Service) Away From Work Daily Category Image 18
Time and Labor (Manager Self Service) Unapproved Absence Weekly Page Image 18
Time and Labor (Manager Self Service) Approved Absence Weekly Page Image 18
Time and Labor (Manager Self Service) Training Weekly Page Image 18
Time and Labor (Manager Self Service) Comp Time Off Weekly Page Image 18

There is a lot of good information on the Fluid User Interface key concepts page accessible at PeopleSoftinfo.com. This page has links and content for everything Fluid. One of the most useful links is the listing of everything that is available in HCM and FSCM in Fluid.   The exact page can be found here.

If you missed any of the preceding blogs regarding all things Fluid be sure to check out these links.

Part 1 – Complete list of all available Fluid Pages that are common to FSCM
Part 2 – General Ledger Fluid Pages
Part 3 – Expenses Fluid Pages
Part 4 – Accounts Payable Fluid WorkCenter
Part 5 – ALM Fluid Pages
Part 6 – Treasury Fluid Pages
Part 7 – Purchasing and eProcurement Fluid Pages
Part 8 – Mobile Inventory Fluid Pages
Part 9 – SRM and Supplier Contracts Fluid Pages
Part 10 – HCM Fluid Pages
Part 11 – Workforce Management Fluid Pages
Part 12 – Workforce Development Fluid Pages
Part 13 – HCM Self-Service Fluid Pages
Part 14 – Global Payroll Fluid Pages
Part 15 – Recruiting Fluid Pages

If you would like additional information, please contact me at larry.zagata@miproconsulting.com.

Lease Accounting Terminology – ASC 842 Accounting Lease Standards and PeopleSoft Lease Administration

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Deep Dive Blog Series: Part 1 of 5 Hello everyone. I am working on a 5-part blog series for the new ASC 842 Accounting Lease Standards. The 5 parts will be as follows: Blog series introduction and new lease accounting terminology Basic lease accounting example Expanded lease accounting discussion – I Expanded lease accounting discussion […]

Simplified Analytics

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Another Easy to Use and Powerful Tool Delivered by PeopleSoft Are your end users looking for a more graphical representation of their analytic information? Are you seeking justification for moving to PeopleTools 8.55? If you have not already viewed the PeopleSoft Talk with Marc Weintraub: Simplified Analytics featuring Matthew Haavisto I strongly recommend you do. […]

Recruiting Fluid Pages

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We have put together a list of the delivered Fluid content for Recruiting; this covers Talent Acquisition and Candidate Gateway. There are 63 delivered Fluid Pages in Recruiting making it very heavy on the Fluid User Experience and also making the PeopleSoft front-end a very modern user experience for candidates looking into your organization. Product […]

PeopleSoft Asset Checkout

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Global Payroll Fluid Pages

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There are some pretty nice Fluid features including some Fluid Pivot Grids for Global Payroll. The results allow the user to filter, drill down and take related actions on the details of the Global Payroll Analytics. The links below will take you directly to the PeopleBooks page describing the delivered content for Global Payroll Fluid […]

HCM Fluid Enhancements – Image 22

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Did you know in Image 22 there are a minimum of 7 new HCM Fluid enhancements, more if you break it down granularly into specific functionality. PeopleSoft continues to expand the use of Fluid and improve the end user experience tremendously across the HCM platform. We have summarized the new higher level HCM Fluid enhancements […]

Quick Take – First Step – Identifying Your Leased Assets

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Preparing for the new Lease Accounting changes with PeopleSoft Lease Administration In a previous blog I discussed the high level steps to prepare for the new lease accounting changes. In this blog I will be focusing on the first step, identifying your leased assets. The reason for the deeper dive on this step is that […]

Fluid Approvals – Image 23

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PeopleSoft continues to expand Fluid, especially the very valuable Fluid Approvals. In Image 23, the following Fluid Approvals enhancements were rolled out so here is a consolidated list from the Image 23 overview document. An additional six new Fluid Approvals transactions were added. Enhanced the Fluid user interface for approval of Travel Authorization, Cash Advance, […]

PeopleSoft Lease Administration Quick Take

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 A Few of My Favorite New Lease Administration Features Released in v9.2 PeopleSoft Lease Administration will soon be completing the final changes for ASC 842/IFRS 16 compliance and I will be covering that topic in later blogs. In the meantime, I would like to do a quick take and point out a few of my […]

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