If you are interested in learning more about asset leasing using Microsoft Dynamics 365 Finance, contact us here to find out how we can help you grow your business. You can also email us at firstname.lastname@example.org or call (312) 345-8817.
The Basics of Asset Leasing in Dynamics 365 Finance
Asset Leasing in Microsoft Dynamics 365 Finance is an advanced capability for managing, tracking, and automating financial transactions. Asset leasing complies with international accounting standards (IFRS 16) and US GAAP standards (ASC 842). Asset leasing captures and processes information about the leases and helps generate journal entries throughout the lifecycle of the lease, from initial recognition, monthly journal entries, to impairment and termination of the lease. Continue reading this blog to learn about how Microsoft D365 Finance can simplify tracking leased assets.
Asset Leasing elements
The following diagram shows the main elements of the business process for leases. Before you can use this feature, it must be turned on in your system. Admins can use the Feature management workspace to check the status of the feature and turn it on if it’s required. In the Feature management workspace, find and select the feature that’s named Asset Leasing, and then click the Enable now button.
A leased asset contains the following main components:
- Lease agreement – The lessor owns the asset and agrees with the lessee to lease an asset for specific period in exchange for periodic lease payments. In addition to the legal contract between the lessor and lessee, the lease agreement captures management decisions such as the likelihood of exercising a renewal option and transfer of ownership.
- Lease calculation and classification per accounting standard – The lease calculation and classification identify the accounting standard that will be applied in the initial and subsequent measurement, as well as the classification test that determines what the lease type will be. A lease can be a finance lease, an operating lease, a short-term lease, or a low-value lease. The system also calculates the net present value of future minimum lease payments for the purpose of valuation and classification.
- Lease transactions – Asset leasing supports the initial recognition of the right-of-use asset for leases on the balance sheet, as well as subsequent measurement for either on-balance sheet leases or off-balance sheet leases. The initial recognition transaction measures the net present value of future minimum lease payments. This data is used to determine the value of the initial right-of-use asset and lease liability, which affect the organization’s balance sheet. The subsequent measurement of monthly lease transactions involves the accumulation of interest on the lease liability, which increases the lease liability. It also measures the accrual of lease payments that decrease the lease liability, and that will subsequently be paid to the lessor. The measurement also includes the amortization of the right-of-use asset.For off-balance sheet leases, the system calculates the straight-line lease expense over whichever is less: the economic life of the asset, or the lease term. Lease adjustments measure contract modifications such as a lease extension or expansion, and the impairment transaction that uses the right-of-use asset for non-recoverable costs.Asset leasing integrates with General ledger to ensure that all posted lease transactions update your chart of accounts. Asset leasing integrates with Accounts payable to track lessor invoices in Accounts payable and take future payments from there. The integration with Fixed assets lets you track leases in the fixed assets register and post right-of-use assets transactions, including the initial recognition, depreciation, and impairment of the asset, from within Fixed assets.
Create an asset lease
Complete the following steps to create a new lease.
- To use Asset leasing, you must enable it in the Feature management workspace. From the Feature management workspace, select All so that all features are listed on the page. Select Asset leasing, and then select Enable now.
- Go to Asset leasing > Common > Lease summary. Enter the required fields on the General FastTab.
- Lease details
- Asset useful life (Months)
- Lease group
- Incremental borrowing rate (%)
- Compounding interval
- Annuity type
- Commencement date
- Move to the Payment schedule lines FastTab and enter a payment line, then select Create schedules.
- Select Books.
- Switch to the General FastTab. The Initial right-of-use asset and lease liability are calculated.
- Move to the Lease classification test FastTab to check the value in the Lease type field.The automatic Lease type is classified based on the criteria that are defined on the Books page.
- Go to Payment schedule under the Function section.
- Select Initial recognition to create initial recognition journal.
- Select Asset leasing journals to post the initial recognition transaction.From the payment schedule you can open a detailed page that lists the right-of-use asset transactions.The Lease liability amortization schedule shows the interest amount that’s calculated for each period.
- Create the journal, and then go to Asset leasing journals. The Lease liability amortization schedule also shows in the interest transactions.
25 Brilliant Ideas to Outsmart Your Competition with Microsoft Dynamics
Top 10 Inventory & Operations Decisions Distributors Are Making Blind
2020 Nucleus Research Report on ERP Technology