web
You’re offline. This is a read only version of the page.
close
Skip to main content

Notifications

Announcements

No record found.

News and Announcements icon
Community site session details

Community site session details

Session Id :
Dynamics 365 Community / Forums / Microsoft Dynamics 365 | Integration, Dataverse... / Lease modification adj...
Microsoft Dynamics 365 | Integration, Dataverse...
Suggested Answer

Lease modification adjustments

(3) ShareShare
ReportReport
Posted on by CU11031501-0 8
Please can anyone help with this lease modification scenario: How does one account for lease term reduction adjustment that results in positive right of use asset in the transaction currency, but negative right of use asset in the reporting currency? Having that challenge right now. The lease adjustment value requiring reduction of same amount in lease liability and ROU Asset is okay as the required reduction in transaction currency is lower than the current value of the lease liability as well as the ROU Asset. However, because the ROU Asset is being carried in the reporting currency at the historical rate, and the reporting currency has significantly devalued, the lease adjustment value translated at the exchange rate on date of modification throws the ROU Asset in reporting currency to negative. How does one account for this?
Categories:
Dynamics 365 general
I have the same question (0)
  • Martin Dráb Profile Picture
    Martin Dráb 237,976 Most Valuable Professional on at
    Which D365 product are you using? The D365 brand covers quite a few things, such as Finance and Operations, Business Central or Customer Engagement.
  • CU11031501-0 Profile Picture
    CU11031501-0 8 on at
    @Martin Dráb - Using the community for the first time, so not sure of the categories to post in, but was hoping to still get response in the category I posted in.
  • Suggested answer
    Saif Ali Sabri Profile Picture
    Saif Ali Sabri 2,351 Super User 2025 Season 2 on at
    “AI was used in this reply”.
    In Microsoft Dynamics 365 Finance, when a lease modification (lease term reduction) results in a positive Right-of-Use (ROU) Asset in the transaction currency but a negative ROU Asset in the reporting currency due to exchange rate fluctuations, you must ensure the financial statements remain accurate and compliant with IFRS 16 or ASC 842.

    Understanding the Issue

    • The ROU Asset is recorded in the reporting currency at the historical exchange rate.
    • The Lease Liability is translated at the exchange rate on the lease modification date.
    • Due to a significant devaluation of the reporting currency, the translated lease reduction exceeds the ROU Asset balance, pushing it into a negative balance (which is incorrect under lease accounting standards).

    Solution Approach in Dynamics 365 Finance

    Step 1: Perform the Lease Adjustment in the Transaction Currency

    1. Determine the lease adjustment value (reduction in Lease Liability and ROU Asset) in the transaction currency.
    2. Confirm that the reduction amount does not exceed the Lease Liability and ROU Asset balance.
    Journal Entry in Transaction Currency: 
    java
    Dr Lease Liability (Transaction Currency)  
    Cr ROU Asset (Transaction Currency) 

    Step 2: Translate the Adjustment to Reporting Currency

    • The ROU Asset balance in reporting currency is at the historical exchange rate.
    • The adjustment is translated at the modification date’s exchange rate, creating a mismatch.
    • This causes the ROU Asset to turn negative, which is not allowed.

    Step 3: Prevent Negative ROU Asset by Recognizing the Excess as an Expense

    Since an ROU Asset cannot be negative, any excess reduction amount should be recognized as an expense (loss) in the Profit & Loss (P&L) account.
    Adjustment Journal Entry in Reporting Currency: 
    css
    Dr Lease Modification Expense (P&L) [Excess Adjustment Amount]  
    Cr ROU Asset (to bring balance to zero) 
    • This entry offsets the excess amount caused by currency devaluation and ensures accurate reporting.

    Step 4: Perform Foreign Exchange Revaluation on Lease Liability

    1. Run foreign currency revaluation on the Lease Liability in Dynamics 365 Finance to ensure its balance reflects the correct value in reporting currency.
    2. Ensure the exchange rate difference is recognized in the appropriate FX gain/loss account.

    Final Considerations

    ✅ Ensure Lease Compliance – The adjustment should align with IFRS 16 / ASC 842 lease accounting standards.
    ✅ Test Before Posting – Validate the adjustment in a test environment to confirm that the ROU Asset does not become negative after revaluation.
    ✅ Review Financial Statement Impact – Work with finance teams to assess how the adjustment affects P&L and Balance Sheet reporting.
    Would you like specific guidance on how to process these journal entries in Dynamics 365 Finance?

Under review

Thank you for your reply! To ensure a great experience for everyone, your content is awaiting approval by our Community Managers. Please check back later.

Helpful resources

Quick Links

Responsible AI policies

As AI tools become more common, we’re introducing a Responsible AI Use…

Neeraj Kumar – Community Spotlight

We are honored to recognize Neeraj Kumar as our Community Spotlight honoree for…

Congratulations to the November Top 10 Community Leaders!

These are the community rock stars!

Leaderboard > Microsoft Dynamics 365 | Integration, Dataverse, and general topics

#1
Martin Dráb Profile Picture

Martin Dráb 41 Most Valuable Professional

#2
iampranjal Profile Picture

iampranjal 39

#3
Satyam Prakash Profile Picture

Satyam Prakash 35

Last 30 days Overall leaderboard

Featured topics

Identifying an Org as CDS or Dynamics
Get batch job history log from D365 FO to Power Automate
Gross and Net Weight of Shipments feeding back into Sales Order (from External Source)

Product updates

Dynamics 365 release plans