Welcome! I would like to introduce my next blog series, “My Favorite PeopleSoft Lease Administration Transactions.” With the new accounting rules taking effect this year, I’ve had plenty of opportunity to work with PeopleSoft Lease Administration using PUM 27 to 30 (especially PUM’s 28 to 30 over the past six months). As a consultant and an accountant, I’ve been very impressed with the ability of PeopleSoft’s Lease Administration to effectively handle both complex and routine lease transactions.
Each installment in this blog series will feature a different one of my favorite transactions. My results will be verified through an example transaction accompanied by a detailed accounting walk-though.
Without any further introductions, let’s jump right in!
My first favorite transaction is amending a multi-asset lease to remove an asset. In this example, the number of leased assets is reduced from three assets to two assets. I performed this amendment in two different ways. In scenario #1, I removed the asset as of the current date. In scenario #2, I back-dated the amendment by one month to the prior month. Often in the real world, lease amendments do not get recorded in the system until after the fact. Scenario #2 was designed to simulate this real-world circumstance.
As expected, both scenarios of the amendment produced verifiable results.
For this example, the lease data included:
- Lease Term – 07/01/2018 – 06/30/2021
- Payment – $2,800.00 per month before the amendment
- 3 Assets @933.33per month
- 100,800 total (36 x 2,800) = 100,800
- Borrowing rate – 5%
- ROU Capitalized Cost per asset $31,141.32
As stated earlier, the amendment consists of removing one of the assets from the lease. The amendment(s) were performed on 12/01/2018 in the system using the following two scenarios:
- Scenario 1 – In December, the lease was amended effective 12/01/2018.
- Scenario 2 – In December, the lease was amended effective 11/01/2018 (back-dated).
New payment amount after removing an asset $1,866.67 ($2,800 x 2/3).
If we look at the lease when it was created, we can see that the ROU asset balances per asset are $31,141.32.
Below is an image taken directly from PeopleSoft’s Lease Administration. The Lease Administration payment schedule from the base rent page shows the monthly rent and the amortization. Take note that this schedule is for the entire lease and not just for one asset.
The Excel table I created (shown in the screenshot below) breaks down the amortization by asset in the two right hand columns. I used this offline Excel calculation to verify the results of the lease amendment calculations in both scenarios.
Looking at the Cumulative Obligation reduction column, we see that the balance (as of 11/30/2018) is $4,051.51. This represents the amount of Obligation/ROU reduction on the asset before it would be removed from the lease (using first scenario 12/01/2018 amendment date). We also see a balance of $3,234.45 on 10/31/2018. This corresponds to the amount of Obligation/ROU reduction on the asset (if the amendment was back dated to 11/01/2018 as in scenario #2).
Shown below are screenshots from my PeopleSoft Lease.
- In scenario #1, using the 12/01/2018 as the effective date, you can see PeopleSoft Lease Administration correctly calculated the amended ROU/Capitalized down to the penny at $4,051.51. This exactly matches the verification amount from my Excel spreadsheet above.
- Also, in scenario #2, the PeopleSoft amended calculation of $3,234.45 exactly matches my verification amount.
Updated PeopleSoft ROU/Capitalized cost amounts from scenario #1 (12/01/2018):
Updated PeopleSoft ROU/Capitalized cost amounts from scenario #2 (backdated to 11/01/2018):
Seeing how the ROU numbers tied out for both scenarios is why this is one of my favorite transactions in PeopleSoft Lease Administration. Although the transaction was slightly complex, Lease Administration handled it as expected.
Now, let’s look at the payments!
In scenario #1 (with effective date 12/01/2018), you can see the system begins the new lower payment with December.
In scenario #2 (with the back dated amendment of 11/01/2018), the system identifies the November payment was previously made at the higher amount. It corrects November to the lower amount through a credit memo.
In scenario #1 (with 12/01/2018), the new lower payment amount starts with December.
On the other hand, in scenario #2 (with 11/01/2018), the new lower payment amount is back-dated in November with the original higher November payment being reversed out with a credit.
In conclusion, PeopleSoft has done a great job with the details, especially from an end-to-end accounting perspective. Using my off-line calculations I was able to verify my lease amendment results against the journal entries and the payment information. It was great to have the audit trail and see all the details!
As always, thank you for reading and be sure to read my next installment in this series & our other Lease Administration Blogs.
Steven Brenner, CPA
Senior Principal Consultant