Leasing - purchase option

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Posted on by Giorgio Bonacorsi

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Hello,

Does anyone know in D365FO what the criteria /purchase option/ is during the leasing classification?

Which flag is it? Which configuration is it?

Thank you,

Giorgio

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Hana Xue Microsoft Employee on at

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Hi,
We can define a lease-purchase option as an agreement that offers renters a choice to buy the rented property either during or at the end of the lease. In most cases, these agreements have two parts: a regular lease agreement as well as an option to buy. With the option to buy route, buyers pay the seller funds for the exclusive legal right to buy the property or home within a specified period. It is not a button or flag in the system. The system will automatically classify leases as operating or finance leases, or short-term or low-value leases based on lease classification tests: transfer of ownership, purchase option, lease term, present value and unique assets. it is mentioned on the accounting standard you follow (IFRS 16 or ASC 842). Below are the IFRS 16 and ASC 842 specific instructions.
https://www.bakertilly.com/insights/lease-classification-implementing-the-new-leases-accounting-standard/
https://ifrscommunity.com/knowledge-base/ifrs-16-recognition-and-measurement-of-leases/#purchase-option
Best Regards,
Hana

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Giorgio Bonacorsi 2,147 on at

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Hello Hana,

Thank you for your answer, but I need to know which flag/field/setup D365FO considers to understand that there is a purchase option.

The draw shared upped came from the Microsoft specification.

Thank you,

Giorgio

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Hana Xue Microsoft Employee on at

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Hi,
The system will automatically classify the lease as an operating lease or a finance lease based on the lease classification test -- perhaps this is an internal job of the system and calculate and classify the lease according to accounting standards. In the document it is only mentioned that the book settings in the system define the applied accounting standards, lease types and thresholds. These standards and thresholds are used as the basis for classification testing. Beyond that, I didn't find an explicit setting for flagging the purchase option in this module of the system.
Best Regards,
Hana

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Giorgio Bonacorsi 2,147 on at

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Thank you, Hana, for taking the time to answer; it's very kind.

I am aware that the system performs an automatic classification.

Therefore, my question is: Which parameter is behind the "purchase option?" Me too; I've not found any additional information on the official documentation, so I'm asking.

But, Microsoft tech talk and the official guidelines mentioned that part of the calculation (see the draw upper).
So, does anyone know the implications of the system? Thank you again.

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Hana Xue Microsoft Employee on at

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Hi,
I carefully studied the flow chart of the lease classification test, and I found that in fact there is no purchase option button in the system. The system has not designed this to have selectable parameters similar to other buttons: transfer of ownership, lease term, present value, unique asset.( These buttons are displayed in the system. )

According to the flow chart of the lease classification test, you will find that in fact, if any of transfer of ownership, lease term, and present value unique asset is set to yes or meets the conditions, it will be classified as a finance lease. Regardless of whether the purchase option is NO or YES, you only need to fill in the lease term or present value and the system will automatically classify according to the value you fill in. Moreover, the accounting standards also point out that the definition of purchase options is actually very complicated and has certain standards, such as: an economic penalty for not exercising, the uniqueness of the asset, cost of moving, cost of disruption to operations, cost of abandoning leasehold improvements, etc. This involves a lot, so the system may not simply set a button to select.

To sum up, I think you don’t need to worry about the parameters behind the purchase option, because the settings provided by the system basically meet the classification test. This is all I can do to help you.

PS: The above screenshots are the screenshot of the lease classification test part in the test environment and the screenshot of the purchase option description in the accounting standards. When I uploaded it, I found that the forum could not display the pictures normally. In order to eliminate your trouble, I will tell you here. .If you can see it, please ignore it.
Best Regards,
Hana

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Giorgio Bonacorsi 2,147 on at

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Thank you Hana.
Yes, me too. I carefully checked the system, and there is no button purchase option. We are on the same page; it seems that we should leverage the other setup during lease-type recognition. The best way to confirm this statement definitively is to proceed with debugging the book's re-recalculation. I’ll try to do it and send you the final confirmation.

Meanwhile, thank you for your feedback; they were very appreciated.

Best regards,
Giorgio

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