Utilize Asset Leasing to Manage Leased Assets in Microsoft D365 Finance

Posted on: August 30, 2021 | By: Lauren Yang | Microsoft Dynamics AX/365, Microsoft Dynamics Manufacturing

In today’s highly technological world, most automotive organizations are experiencing unprecedented challenges and making new plans. In such times, organizations must remember to address changes in accounting regulations as well. Dynamics 365 for Finance & SCM helps businesses reduce risk, and to automate and modernize global financial operations. Asset leasing in D365 Finance is an advanced capability for managing, tracking, and automating financial transactions for leased assets in Microsoft Dynamics 365 Finance. It complies with International accounting standards (IFRS 16) and US GAAP standards (ASC 842). These capabilities allow automotive companies to manage asset leasing efficiently and to remain compliant with change accounting regulations. Not only does asset leasing capture and process information about the leases, but it also helps generate journal entries throughout the lifecycle of the lease, from initial recognition, monthly journal entries, to impairment and termination of the lease. Additionally, because asset leasing integrates seamlessly with other components of Dynamics 365 Finance, including Fixed assets, Accounts payable, and General ledger, the feature reduces manual errors and save user time through automatic lease status updates, right of use assets, wholistic monitoring, and calculations of net present value, lease interest, and future cash payments. 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.

Asset Leasing Elements

Asset leasing integrates with the General ledger to ensure that all posted lease transactions update your chart of accounts, reducing financial risk for automotive companies. The function also 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. 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. 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 a 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 the 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.

Asset Leasing Components

Microsoft D365’s rich, integrated functionality can handle complex contracts and multi-location fleets through automated financial and operational leasing and documentation. From services, replacement, invoicing, to auto-sending documentation to drivers, third parties, customers, and other stakeholders, D365 allows automotive companies to manage needs for rentals, leasing, and services. Asset leasing maps lease information, payment schedules, starting and ending dates, and the payment frequency. It also automates calculations for net present value, monthly lease payments, interest, and lease amortization. The system performs lease classification tests, depending on the configuration, and creates the corresponding lease transactions, which are based on the framework defined by the accounting standard you’re following. The following diagram shows the lease book, the lease, calculated payment schedule, the classification tests for leases and lease books, and the corresponding accounting transactions.

Feature Details

Asset leasing for the automotive industry helps customers feel more confident that they are following the proper accounting standards for ASC 842 and IFRS 16, reducing the risk of spending extensive time doing offline calculations. Asset leasing includes the following functions:

  • Automates complex lease calculation of a lease’s present value, and its subsequent processes such as future lease payments, amortization of lease liability, and the right-of-use asset depreciation and expenses schedules.
  • Helps automatically classify the lease as either operating or finance, or as a short-term lease or low-value lease. The lease classification tests include Transfer of ownership, Purchase option, Lease term, Present value, and Unique asset.
  • Centralizes the management of lease information, such as important dates, including the commencement and expiration dates, as well as the lease’s transaction currency, payment amounts, and payment frequency.
  • Helps generate accounting entries for the initial recognition and subsequent measurement of the lease liability and right-of-use asset.
  • Reduces time for complex calculation of lease modification and automatic adjustment transactions.
  • Provides posting to different layers to accommodate different reporting purposes, such as tax reports that are available in Dynamics 365 Finance.
  • Complies with the accounting standards to represent leases in balance sheets using the Balance sheet impact calculator.
  • Provides audit controls over the integrity of the lease data to ensure that the posted transactions match the calculated amounts of the present value, future payments, and liability amortization.
  • Provides tools to import from or export to Excel for all lease data.
  • Includes features that help in preparing asset leasing reports, particularly the preparation of disclosures and notes.
  • Integrates with your company chart of accounts, currencies, fixed assets, vendors, journals, data management, and number sequences.

Next Steps

If you are interested in learning more about how to utilize asset leasing to manage leased assets in D365 as well as maximizing the use of Microsoft Dynamics 365 for Finance and Supply Chain Management contact us here to find out how we can help you grow your business. You can also email us at info@loganconsulting.com or call (312) 345-8817.



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