If you’re a system administrator setting up asset leasing in Dynamics 365 Finance & Operations for the first time, you may be looking for some guidance. Below are step-by-step instructions to help you avoid any misconfigurations.
It’s important to set up asset leasing correctly in order for the system to work properly. The following steps are in the most efficient order, to avoid having to bounce back and forth between screens.
Asset Leasing Parameters
Account leasing -> Setup -> Asset leasing parameters
A. Asset Leasing Parameters | Leases
Fill out the journal names. If they are not created, go to General ledger -> Journal setup -> Journal names. You only have to fill out the boxes you intend to use.
- Allow manual classification override: Allows the lease classification to be overwritten manually. This allows the lease classification to be changed until the payment schedule is confirmed.
- Cross entity batch: Allows you to create and post journal entries using the batch creation process in different legal entities.
- Allow depreciation reversals on closed books: Allows posted depreciation transactions to be reversed for a closed book version.
- Allow deletion of confirmed leases: Allows the lease to be deleted if it is confirmed.
- Allow payment amount breakdown: Allows lease payment schedule line amounts to be broken down.
B. Asset Leasing Parameters | Accounts
Create the lease accounts. Asset leases are defined in ASC 842 and IFRS 16.
Create the executory costs, if needed.
Note: These have to be set up for all posting types for the leases.
C. Asset Leasing Parameters | Number Sequences
Change the number sequences code. You can change the code by clicking on the code or you can create new codes. This is recommended as that will keep all old codes in the system and you can see that you created a new code.
Asset leasing -> Setup -> Leasing groups
The leasing groups define the different groups such as building, land, equipment, etc. You can be as specific as you need and define each building, land, vehicle. It is very important that these groups reflect your asset leasing.
In the action pane you can press “Books”. See later on in this blog for the setup of Books.
Location indicates the asset’s location. The location can be cities, counties, states, countries, etc. It can also be warehouses or inventories.
Index Rate Types
The index rate is used on the payment schedule line in the book. The “index rate method” can be either index rate value difference or index rate value.
“Index rate value difference” is for calculating the lease payment based on the difference between the index rate at commencement date and the most recent index rate-defined index rate field where the “index rate value” calculates the lease payment, using the percent defined in the index rate % field.
The rest of the field is up to you to define, as these have to make sense with your assets.
Books are all about which accounting frameworks should be used.
- Posting layers: Each book that is attached to a lease is set for a posting layer that has different purposes.
- Lease type: The lease type can be an operating lease or a finance lease. It can also be set to automatic, as this will result in fewer books.
- Accounting framework: The most common ones are IFRS 16 and ASC 842 which set up the principles and rules for asset leasing. ASC 840, IAS 17 and cash basis can also be used.
- Lease term/useful life % set up: This field will classify the asset as a finance lease, if the lease term is set to automatic, and if the lease terms are over the asset’s useful life and is equal or greater than the % in this field.
- Present value/asset fair value (%) set up: % of assets fair value. This field will classify the asset as a finance lease if the lease term is set to automatic, and if the present value of future lease payment over asset fair value is equal or greater than the % in this field.
- Leasing convention: Commencement date. If this is set to none, the start date will be the commencement date.
- Short term threshold: Enter the number of months that will be used as a short-term threshold.
- Low value threshold: Enter the amount to use as a low value threshold.
- Pay to vendor: Set to yes, it will allow a lease payment to be posted as an invoice to the vendor account specified on each lease.
Usually these are administrative expenses. Expense types are expenses related to an asset and have to be associated to accounts under “Asset leasing parameters | Accounts” on executory costs. For a building, it could be maintenance, insurance, utility, property taxes, etc.
If you have any questions about Asset Leasing in Dynamics 365 Finance & Operations, please get in touch with us.
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