Real Estate Portfolio Management / Lease Administration / Lease Portfolio / Extension for Lease Accounting

To Record a Residual Value Guarantee

Requirement

Amortized lease payments include any amounts that a lessee will probably be owed under residual value guarantee or a lessor will gain under this guarantee.

For some leases, such as equipment leases for trucks, the lessee guarantees that the market value of the asset at the end of the lease will be at least a specific value. In some cases, the lessee’s estimates indicate that they will need to pay the difference between the likely market value of the asset value at the end of the lease to meet this guarantee. This difference, the Residual Value Guarantee, is recorded as a cost during the final fiscal period of the lease, and this cost is included in the present value calculation for the Initial Lease Liability and the Beginning Right of Use Asset value.

Note: Do not confuse the Residual Value Guarantee with the Residual Value asked for by the Lease Classification Wizard when calculating the implicit interest rate. In that case, the Residual Value is the full estimated market value of the asset at the end of the lease.

Procedure

Invoke the Add/Edit Wizard or the Lease Portfolio Console. Both are available on the Process Navigator at Real Estate Portfolio Management / Lease Administration / Lease Portfolio.
In the Recurring Costs section, create a cost record with these values.

Field	Value
Amount Income Amount Expense	Depending on whether you are a lessor or lessee, complete one of these fields with the amount owed (or earned) under a residual value guarantee.
Cost Category	LEASE - OTHER AMORTIZED COSTS
Start Date End Date	Complete these fields with the final fiscal period of the lease.

Field

Value

Amount Income

Amount Expense

Depending on whether you are a lessor or lessee, complete one of these fields with the amount owed (or earned) under a residual value guarantee.

Cost Category

LEASE - OTHER AMORTIZED COSTS

Start Date
End Date

Complete these fields with the final fiscal period of the lease.

Outcome

Costs in the cost tables representing the residual value guarantee.

The Lease Classification Wizard will include the RENT - BASE RENT costs in the ROU Asset and lease liability calculations, but will not include the other costs.