We begin our review of the Wave 2 for D365 Finance, new features, with a highly expected module, Asset Leasing.
This module will help us to manage and automate all the leasing management of the company, and it is integrated with the General Ledger, Accounts Payable and Fixed Assets modules.
This is the scheme that Microsoft shows us:
At first glance, this module reminds me of the Fixed Assets module: groups, books and accounting accounts are configured for each of the movements that can be made, with all the flexibility that means, it looks great!
Let’s start reviewing the basic configuration needed for the module, it’s all in the Setup section :
Lease books: determines the accounting framework for rental management and the type of lease. D365F manages five types of regulations or accounting frameworks. For Spain we will use IFRS16.
+ US GAAP (Base en efectivo)
+ IFRS 16
+ ASC 842
+ ASC 840
+ IAS 17
With respect to the types of lease, you can choose between
+ In the process of development (the translation of Operating)
+ Automatic: in this case the system classifies the leases between Financial or Operations according to the percentages determined in the fields “Configuration of the lease term/useful life” and “Configuration of the current value/fair value of the asset”..
For each book, the “Short Term Threshold” is also configured, which determines the number of months that an asset will be automatically classified as short term and the amount of “Low Value Threshold”.
Important point: You have the option to predefine whether the lease payments should generate an invoice on the supplier’s account or not. This is the way to link this new module with Suppliers.
Once we have the books created, we define the Lease Groups, and assign the default book (we can have one or several).
In the case that the payments depend on an index (variable payments), these types can be configured and maintained in D365F for use in the calculation of the fees in the Indexed Type Classes form. Two methods of indexed types can be created: “Indexed Type Value” or “Indexed Type Value Difference”.
Another mandatory configuration is the Asset Lease Parameters, in which they are selected:
+ The journal names for recording the movements (a new journal type “Asset Lease” has been created).
+ The necessary numerical sequences.
+ The Lease Accounts (accounting register accounts) for each type of record (or movement) that is made. In this case there is no posting profile as such, but this form defines the configuration by type of movement, ledger and by type of lease: financial or operational.
I highlight here some of the movements necessary for a basic configuration of the module according to the movement type:
+ Formalization of the loan: the accounting accounts of the types “Lease asset” and “Lease liability”. When we link the lease to a fixed asset, the asset account is retrieved from the asset posting profile, the one configured for the transaction type Acquisition. Another important account to report is “Short-term lease liability”, to reclassify long to short.
+ Payment of the fees: the account must be informed of the type “Payment by lease”.
+ Registration of the payment of interest: the account of the type “Interest expenses” must be informed.
With this configuration we can now start to create our leases, activate them and launch the monthly payment and depreciation processes.
Once we have the module configured we start with the process of creating and activating the lease.
“Add lease: we register in the master of leases our new record by selecting the mandatory values of the card:
+ Fair value of the asset
+ Incremental interest rate on debt
+ Asset life cycle
+ Leasing group
+ Start date
+ As well as any other information relevant to our registration (such as data on the indexed type, the contract…)
We do this from Asset Leasing > Leases > Lease Summary.
In the tab Multivalue Lines, we register the related payments: here we must inform the number of installments, the frequency of payment and the amount of them. This information is also mandatory for the creation of the lease.
Tip: there is an option to create a lease by copying a previous one which speeds up the creation.
Once the master and payment values are informed, click on Create Schedules.
This process adds the Book linked to the lease with its associated payment schedules, which can be consulted from Function > Schedules > Multidates, according to the information entered.
If the data created is correct, you must Confirm the schedule, which locks the record to prevent changes (…although it is possible to make adjustments, which erases the book and recreates the linked book. From this part I like very much that all changes are kept in the version history).
It is possible to consult the amortization table and depreciation in the buttons of the Function section: Schedule liabilities amortization and Schedule assets depreciation. The first form is the crown jewel of the module, it contains all the necessary and fundamental information for the management of the lease. If you move the cursor to the right you will see that the system calculates the short and long term amounts.
At this point the status of the lease is Not yet acquired.
With the lease ready we perform the first step which is the formalization of the loan that is done from the book, in Function > Function > Initial recognition. This generates an asset leasing journal that can be consulted from Function > Journal > Asset Leasing Journal,and which must be Registered in order to be accounted for.
Once the journal is recorded, the status of the lease is set to Open. Two transactions of type Initial recognition are generated, one for the asset and another for the liability of the lease. Our lease is already in progress and ready to perform the processes of payment of fees, interest and depreciation.
The payment of the installments can be made from the Multi-Maturity , selecting the installment to be recorded and pressing Create Journal, which, similarly to the previous one, must be recorded.
Tip: The journal creation processes can be launched in a massive way with the journal creation by batches process, selecting the Multivenue programming type, creating a journal for each lease and selected date.
When the journal is registered, a transaction of type PLease Payment is generated for each installment, for the lease liability. And to the question you are asking yourself… is it a payment but… related to a supplier? If we remember in previous post, in the configuration of the Book we had a check called Payment to supplier, if we checked select the supplier in the creation of the lease is mandatory which will generate an invoice (Note: In next post I will go into detail on this point and the problems I’m finding about it)
If you look at the payment journal created, you will see that the amount does not include the related interest. This is because, although the system calculates them, they must be processed separately and are not included in the same journal, they are created in a separate journal from the Lease Liability Repayment Schedule form or from the linked periodic process, which generates a transaction of the Lease Interest Expense type:
Depreciation recording can be launched from the periodic process or from the query form (Asset Depreciation Schedule), which generates a lease journal that must also be recorded. This generates an asset transaction of the type Asset Depreciation by Right of Use:
Depreciation? but….. related to the fixed assets module? Yes, it can also be linked! in this case, if we select an asset in the lease master this part of the depreciation is deactivated and the depreciation will be performed from the module as before.
The last periodic process is the creation of the Reclassification of Short-Term, Lease Liability journal, which generates a separate journal and two liability transactions:
Summarizing, although it seems very complex, the basic part of the process is five journals and different types of transactions as Microsoft shows us schematically (here the process of passing from long to short does not appear):
To facilitate the whole process in the next post I will make a concrete example with a vendor and linked asset. And in the following deliveries we will see more advanced functionality of the module.