Asset lease termination

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Hi Experts,

Is asset lease termination part of "Installed product version : 10.0.16 (10.0.689.10004) and Installed platform version : Update40 (7.0.5860.35679)". Becoz i dont find any action buttons related to lease termination. Or else it is part of which update??

And can some one explain what is deferred rent in asset leasing. Please explain with a detailed example.

Thanks,

Pranav

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Hi Pranav,

The asset leasing termination functionality was released as part of release 10.0.17 with general availability in March 31, 2021:

https://docs.microsoft.com/en-us/dynamics365-release-plan/2020wave2/finance-operations/dynamics365-finance/propose-early-termination-asset-leases

As for deferred rent, I have recently written a blog post describing the asset leasing posting types that you may find useful: https://community.dynamics.com/365/financeandoperations/b/asset-leasing-experts-blog/posts/deep-dive-into-asset-leasing-posting-types

Please see below for a snippet of the post describing deferred rent:

Deferred Rent Asset (Liability)

The account associated with the deferred rent asset or liability resulting from a deferred rent treatment lease. This account will be debited when an invoice is posted against a deferred rent treatment lease if the lease payment amount is greater than that period’s straight-line rent expense. This account will be credited if the lease payment is less than that period’s straight-line rent expense.

This account is also used in initial recognition when there is a value in the deferred rent carryover field. When transitioning a lease from the previous lease accounting standards, the amount of deferred or accrued rent is included in the recognition of the beginning right-of-use asset balance. Carried over deferred rent assets, represented as a positive value, will be credited and will increase the right-of-use asset upon initial recognition, while any deferred rent liability, represented as negative values in this field, will decrease the right-of-use asset:

Example Journal Entries:

Transaction Type	Dr/Cr	Posting Type	Dr	Cr
Lease payment	Dr	Lease expense	2,000
Lease payment	Dr	Deferred rent asset	500
Lease payment	Cr	Lease payment		2,500

Transaction Type	Dr/Cr	Posting Type	Dr	Cr
Initial recognition	Dr	Lease asset	105,000
Initial recognition	Cr	Lease liability		100,000
Initial recognition	Cr	Deferred rent liability		5,000

Thanks!

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ThuNgo 978 on at

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Hi Brian,

Can you give more explanation about below transaction

=> I create journal from Payment schedule and cannot find

Thank you,

Thu

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Hi Thu,

There will only be deferred rent when your lease is classified as a "Deferred rent treatment" lease. In other words, the system will only recognize and post deferred rent when you're lease is not capitalized in accordance with IFRS16 or ASC842. Under this deferred rent treatment, the system will only produce a payment schedule as is the treatment for operating leases under ASC840 or IAS17.

Based on your screenshot, the lease payment is debiting the lease liability directly, showing me that this lease is not a deferred rent treatment lease and therefore will not post any deferred rent.

For more information on the topic please see a blog I wrote here: https://community.dynamics.com/365/financeandoperations/b/asset-leasing-experts-blog/posts/lease-treatments-deferred-rent-treatment-149444036

Thanks!

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ThuNgo 978 on at

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Hi Brian,

Sorry i'm not very familiar with these concepts.

So in short.

1. If Deferred rent treatment = yes

Deferred rent asset (liability) is posted in Lease invoice journal

2. Deferred rent treatment = No

Deferred rent is posted again Use of right of the lease asset

Thank you.

Thu

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Hi Thu,

Deferred rent will be recognized on a monthly basis for any lease where Deferred Rent Treatment = Yes. This value is taken from the payment schedule. When the lease is classified as a deferred rent treatment lease, whenever there is a payment, the difference between the cash outflow and the straight-line lease expense is posted to the deferred rent account. If you review the payment schedule for your first scenario, you should see the $167 amount in the payment schedule.

In your second scenario, this $500 is in the initial recognition journal entry for a lease where Deferred Rent Treatment = No. My assumption is that there was $500 entered in the Deferred Rent Carryover field when entering this lease. This journal entry is a one-time journal entry to write-off the deferred rent carryover from the previous classification of the lease.

Thanks!

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