Lease Classification Wizard

The Lease Classification Wizard is a component of the ARCHIBUS Extension for Lease Accounting. Users with a license for the Extension for Lease Accounting will find the Lease Classification Wizard available as a view in the Lease Administration / Lease Portfolio process, and also available from a button on the Lease Portfolio Console.

The Lease Classification Wizard walks you through the process of classifying a building lease or equipment lease as an operating lease or finance lease in accordance with FASB and IASB standards. The Wizard presents a series of initial questions, and based upon your responses, presents additional questions and generates an amortization schedule.

For example, the wizard helps you determine:

Is the Ratio of Initial Liability Over Fair Market Value of the Asset less than or greater than 90%? If the Wizard determines that the value is over 90 percent, you might be able to reduce this value by reviewing and updating your lease right-of-use options. Accordingly, the Wizard includes questions for reviewing and updating your right-of-use options.

Does the Lease Term exceeds 75% of asset’s remaining useful life?
- If so, this as a finance lease.
- However, this criterion does not need to be considered if the lease commencement date falls at or near the end of the economic life of the underlying asset.

You typically use the Wizard to classify leases in these situations:

Initial Classification of Existing Leases -- To get started in complying with IASB and FASB ASC 842 regulations, you will want to revisit each existing lease and determine if it is an operating lease or a finance lease by working through the Wizard.
New Leases-- As you develop new leases, you will need to determine if they are operating or financial. As part of developing a new lease, you can work through the Wizard and classify the new lease.
Changed Lease -- Circumstances. Once you classify a lease, you may find that the situation changes so that you need to verify that the lease is still operating or finance. For example, suppose you used the Wizard six months ago to classify a lease. However, your company has decided to exercise an option to expand the leased space. This change affects your financial situation and could result in a new classification. See Re-evaluating a Classified Lease.