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Hi all,
When using the Asset leasing feature, the Initial ROU asset and the Initial liability do not match the values we obtain when doing the calculations manually. We noticed that the only difference is in the calculation of the Period interest: the system calculates the Period interest for Period 1 and gives us the value 1252.85, while the manual calculation results in 1323 (Beginning balance*Interest rate), as seen in the pictures below.
How is the Period interest calculated? What is the formula behind it?
Thanks
Hi Malfalda,
It appears that your lease has an annuity type of Annuity Due, meaning interest is calculated after the payment has been taken on the liability for that period. Therefore, the calculation for the Month 2 interest is: (1,072,990.75 - 63,986.82)*Incremental borrowing rate/12.
Thanks!
Brian
Hi Brian,
Thank you for your response. Is there any way we can change the way the system is calculating the interest? Could we make it follow a specific formula of ours?
Thanks,
Mafalda
Hi Mafalda,
No, the Asset Leasing module only calculates the interest using the effective interest method. You can achieve different interest expense results by changing the annuity type but that depends on when payments are made - either at the beginning of the period (annuity due) or end of the period (ordinary annuity). If the lease is ordinary annuity, the interest will calculate based on the beginning balance of the liability for each month.
Selecting Ordinary annuity has brought us closer to the values we were seeking, however we are still seeing a different value for period interest.
The system is calculating the interest rate by dividing it for 12 (interest rate/12), while we are using the following formula: (1+interest rate)^(1/12)-1.
What do you recommend?
Mafalda Braga
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