Finance Lease Accounting:

Journal Entries: For a finance lease, the lessee debits interest expense for the interest
portion of the lease payment and debits depreciation expense for the depreciation of the
ROU asset. The lease liability is credited for the portion of the payment that reduces the
liability.
Operating leases are shown as an asset on the balance sheet, valued as the present value
of the lease payments (not the market value of the asset). The lease liability is shown on the
balance sheet (similarly, the present value of the lease payments).
An operating lease is a contract that permits the use of an asset without transferring the
ownership rights of said asset.
A finance lease is a contract that permits the use of an asset and transfers ownership after
the lease period is complete, and the lessor meets all other contract obligations.
IFRS 16 will change the way that companies recognise leases on their balance sheets, and
impact on loan covenants, but it won't change the benefits that leasing brings.
Under IAS 17, operating leases are not recorded on the balance sheet, although lease
payments appear as expenses in the profit and loss account.

What is the right of use asset for a finance lease?

The right-of-use asset for an operating lease is amortized in a systematic and rational basis
by subtracting the liability lease expense from the total lease expense.
Finance lease assets are amortized on a straight-line basis

all leases must be recognized on the balance sheet with a lease liability and ROU
asset, calculated at initial recognition
Who owns the asset in a finance lease
A finance lease or capital lease is a financial product, in which a leasing company gives
operating control of an asset to a business for an agreed period, and typically at the end of
the contract, the lessee will become the owner of the asset at the end of the lease, and both
parties share some of the economic risks

Making Basic Settings

Procedure

The following basic settings have to be made in Customizing before you use
the Flexible Real Estate Management(RE-FX) component. You find these settings
in Customizing for Flexible Real Estate Management in the IMG activities
under Basic Settings .

Caution
For points 1 and 2 below, you should read the documentation in the
Implementation Guide very carefully!

1. Activate the Financials Extension (business function EA-FIN) within the SAP
ECC Extension.

2. Activate the Real Estate Extension.

3. Activate the RE-FX component in the controlling area.

4. Make the basic settings for the company code and activate Financial Assets
Management.

5. Make the basic settings for measurements .

Note
You make the settings for point 5 in Customizing for Flexible Real Estate
Management. Choose Master Data Basic Settings Measurements.

The following basic settings in Customizing are optional:

 System settings for master data dialogs

 Folder for temporary data

 Number range for logs in SAP Application Log

Note
You make these settings in Customizing for Flexible Real Estate
Management under Other Settings.

 Settings related to other components:

 To be able to create and assign external objects from real estate

objects (external objects such as, functional locations, orders, assets,
and so on)

 To be able to use new General Ledger Accounting

 To be able to use the functions of Public Sector Contract Accounting

FI-AA Integration with Lease
Accounting (RE-FX-LA)
Lease Accounting (RE-FX-LA) provides an enhancement for Asset Accounting. (See
also SAP Note 2297363 ). In the related process, assets are created and posted
from leasing contracts; the depreciation amounts of the asset are calculated based
on the data in the lease contract. In general, this integration is supported in Universal
Parallel Accounting.

However, note the following for the migration to Universal Parallel Accounting (UPA
migration):

To enable the asset creation and posting process, a depreciation key that uses base
method 29 is defined in the depreciation terms of the depreciation areas for the
asset.

If an asset manages such a depreciation key in a depreciation area, but the

depreciation key is not managed in the corresponding leasing contract, the system
does not calculate planned depreciation.

After the UPA migration, the system issues error message RECEAA-011 (No
valuation rule found for depreciation area &1) in these cases.

The actual problem here is that this area does not exist as a valuation on the leasing
contract. This means that the reference to leasing – in the form of the depreciation
key – must be removed from the asset master record. (The reference cannot be
created subsequently in the leasing contract.)

Recommendation
To avoid the error, you should replace the depreciation key in such depreciation
areas with a depreciation key that is not relevant for leasing (for example, 0000), if
possible before the UPA migration.

Information System (RE-FX)

Purpose
You can use the reportsof the Information System to collect, summarize, and
evaluate master data and flow data related to real estate management. You can use
existing standard reports or define your own forms and reports for the purposes of
analysis.

In the Flexible Real Estate Management component, there are reports for the
following objects:

 Master Data
 Real Estate Contract
 Long-Term Seating Arrangements
 Measurements
 Conditions
 Rent Adjustment
 Business Partner
 Service Charge Settlement
 Sales-Based Rent Settlement
 Controlling
 Land Use Management (LUM)
 Cost Efficiency Analysis
 Statement of Reserve Fund

Implementation Considerations
Make the following settings in Customizing for Flexible Real Estate Management in
the IMG activities under Information System :

 Create one or more report profiles.

 Make settings for status selection and enter default values by object type.

Integration
If you grouped master data together to form real estate sets, you can use these sets
for reports. For more information, see Real Estate Sets .

Features
 Master Data
 These reports provide an overview of the selected master data and show
certain characteristics of the master data. You can display rental objects and
their assigned objects such as contracts, functional locations, assets, and
WBS elements.

 Real Estate Contracts

These reports provide an overview of your real estate contracts and business
partners. Furthermore, you can select contracts by contract term, date of
notice, and renewal date.

 Long-Term Seating Arrangements

This report provides an overview of the capacity and utilization of reservation

objects. You can display information on occupancy, occupancy data and
vacancies either over a given time period or for a key date.

 Measurements

These reports show you the measurements for the selected master data or
contracts.

 Conditions

These reports show you the conditions of rental objects and contracts.

 Rent Adjustment

These reports show you the adjustment history of the conditions for selected
rental objects and contracts. The reports display the conditions, status of
adjustment, old and new calculated prices, and the adjustment method. You
can also display the dates of the approval or rejection of the adjustment for
lease-outs.

 Business Partner

With these reports, you can select objects by business partners, for example,
using the business partner role, the address data, or the bank details of the
business partner. In addition, you can select business partners for usage
objects.

 Service Charge Settlement

 You can select by periods to be settled or display the documents of the
individual settlement steps for completed settlements with these reports. You
can select by meters and enter measurement documents. You can also
display the postings made for a settlement unit.

 Sales-Based Rent Settlement

You can use these reports to evaluate the results of sales-based settlements.

You can evaluate the results of individual settlement runs or the settlement
results of selected contracts for a given time period.

 Controlling

You can display the line items posted for the master data and contracts for
each object type and cost element with these reports. You can navigate to the
document and master data display from the output list.

 Land Use Management (LUM)

These reports provide information on master data objects of land use

management, a country-specific development for Germany.

 Cost Efficiency Analysis

Using these reports, you can analyze data of adjustment measures for cost
efficiency analysis.

 Item Overview

You can use this report to analyze open and cleared items for several
customer contracts. You can group the items, for instance for business
entities, using subtotals.

 Statement of Reserve Fund

This report provides an overview or a detailed view for each assessment

contract or owner, showing the reserves and cash of a condominium owners'
association (COA).

The following fields are found in most reports, in addition to object selection:

Partner Selection Active :

You can also select objects by business partners or roles. If you select the Consider
Object Hierarchy checkbox, then the system also takes objects into account that do
not have a direct partner assignment, but have a partner assignment through an
object above them in the hierarchy.

Object Selection Active:

You can also select contracts by business partners or roles. If you select
the Hierarchical Object Selectioncheckbox, the system expands the selection by
object ID to include subordinate objects. If you select a business entity, for example,
then its subordinate buildings, land, and rental objects are also taken into account.

Period/Key Date :

You can also limit the validity of the objects to be selected by entering a key date or
a period of time. These dates determine the starting dates for time slot management.

You can navigate to the master data display of the individual objects from the output
list.