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Hi,
What is the difference between these three rates?
Thanks!
Hi CapsLock,
The first two fields relate to the rate used to discount lease payments. To better understand these fields, it's important to understand the guidance in the accounting standards. According to IFRS 16, payments should be discounted by the implicit rate, if available, or the lessee's incremental borrowing rate if that rate is not available:
26 At the commencement date, a lessee shall measure the lease liability at the present value of the lease
payments that are not paid at that date. The lease payments shall be discounted using the interest rate
implicit in the lease, if that rate can be readily determined. If that rate cannot be readily determined, the
lessee shall use the lessee’s incremental borrowing rate.
Similarly, ASC842 states:
842-20-30-3 A lessee should use the rate implicit in the lease whenever that rate
is readily determinable. If the rate implicit in the lease is not readily determinable,
a lessee uses its incremental borrowing rate. A lessee that is not a public
business entity is permitted to use a risk-free discount rate for the lease,
determined using a period comparable with that of the lease term, as an
accounting policy election for all leases.
The Implicit Rate field should be used if there is a rate implicit in the lease. If there is a value in this field, the module will use this rate to discount the lease payments.
If there is no rate implicit in the lease, the system will discount payments using the rate in the Incremental borrowing rate (%) field.
The Index Rate (%) field on the payment schedule lines corresponds to the same field in the Index Rate tab. This rate will autoppulate on the payment schedule lines if there is a value in the Index Rate tab field. This rate is used when revaluing lease payments through the index revaluation process. For more information on that process, please see https://docs.microsoft.com/en-us/dynamics365/finance/asset-leasing/revalue-payments-tied-2-index-rate.
Thanks!
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