The functionalities of the module comply with the International accounting standards FASB ASC 842 and IFRS 16 and allow the automation of calculations and reduction of human error from processes. The module is an advanced capability for managing, tracking, and automating financial transactions for leased assets in Microsoft Dynamics 365 Finance & Operations. Asset leasing integrates seamlessly with other modules of Dynamics 365 Finance & Operations – Fixed assets, Accounts payable, and General ledger.
Asset Leasing Capabilities
Asset leasing maps lease information, payment schedules, starting and ending dates, and the payment frequency.
The module automates calculations for net present value, monthly lease payments, interest, and lease amortization.
The system performs lease classification tests, depending on the configuration.
The system also creates and posts the corresponding lease transactions, which are based on the framework defined by the accounting standard your company is following.
The asset leasing module captures the accounting aspect of the process as it encompasses concluding a lease agreement and entering information about it in the system, creating operations for the initial recognition of the asset to the accruals for leasing payments, accrual of interest and right-of-use amortization. From a financial point of view, the module complies with the standard IFRS 16 according to which leases must be reported on a company’s balance sheet. The use of different accounting layers is also supported – current, tax, operations, and several custom layers, which allows parallel reporting for tax or accounting purposes.
The module helps automate the process of administering a lease after its creation in the system. It also automates the calculation of the present value of the asset and the initial value of the lease. It also automatically generates the necessary accounting records in the form of lease posting registers.
Integration is possible with:
Fixed assets module – acquisition of fixed tangible assets, if necessary
Accounts payable module – generation of registers with vendor invoices, vendor payments
General ledger – the link with finance analytics of the system
Import and export module – capabilities to import basic lease data when starting work with the module
From the point of view of access control, there are three lease user roles:
1. A role of lease administrator 2. A role in which you can only view lease records 3. A role related to payments
Basic reports on the current state of the lease, lease movements and forecasts are also available.
How it works? – Basic steps for creating, administering and accounting for a lease
Once the lease is created, it inherits the report models from the lease group. Report models are defined in the lease group – a similar principle is used in the Fixed assets module. The report models also store the basic information used for the accrual of leasing transactions.
The next step is the classification of the lease. From the point of view of the system, a lease can be classified as either operating or finance, or as a short-term or low-value. When a lease is classified, its present value is also calculated. All leases are required to be recorded on the balance sheet, except for the low-value lease and the short-term lease.
A finance lease is recorded on the balance sheet through the initial recognition in the system step, and then there are several menus – schemes used to calculate additional transactions.
Through the lease amortization scheme, interests are recorded on the expense account. Through the asset amortization scheme, the right of use is amortized on the balance sheet and is also recognized on the expense account. Through the payment scheme, payments are recorded that reduce the amount of the lease on the liabilities side of the balance sheet.
All information about the lease is defined in the report model wherein information about the lease is entered, such as: fair value and useful life of the asset, interest rate on the lease and the starting date.
A payment schedule is then set up where the amount to be paid and the basis on which that amount should be paid is defined. Using this information, the system calculates and generates a schedule of payments with a calculated and present value, interest, payments and periods.
Based on this information, payment transactions on the lease are later generated and recorded. In general, there are four types of transactions:
An initial recognition transaction:
Debit account for right of use / Credit account Lease
The next step is the accrual of interest expenses:
Debit account for interest expense / Credit account Lease
Then, with the accrual of the payment transaction, the lease is reduced:
Debit account Lease / Credit account means of payment
The last step is the amortization of the right of use:
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