Lease Functionality

Lease functionality starts with two determinates: the Major Type of Lease and the Lessor/Lessee Indicator. These two fields result in four different sub type combinations for leases, which are delivered as Debt Type codes (parenthetical codes below). These four can be cloned to create variants for each to satisfy reporting, workflow and accounting control needs. Not displayed below is an internal choice for leasing an asset between parties on the same CGI Advantage Financial application. That functionality is part of the Internal Costing feature in Cost Accounting. Refer to the Internal Costing User Guide for more information.

Sub Type (Debt Type)	Description
Operating Lease as Lessor (OPR-LSR)	An operating lease where you are the lessor and the lessee is a customer account.
Operating Lease as Lessee (OPR-LSE)	An operating lease where you are the lessee and the lessor is a vendor.
Capital Lease as Lessor (CAP-LSR)	A capital lease where you are the lessor and the lessee is a customer account.
Capital Lease as Lessee (CAP-LSE)	A capital lease where you are the lessee and the lessor is a vendor.

When creating a Lease Setup (LEASES) or Lease Modification (LEASEM) transaction, the lease sub type determines which tabs of the transactions are required and which are prohibited for an active lease. The table below details those rules. When required, the system will automatically insert a line on the setup transaction and (if creating a new lease) on a modification transaction.

Transaction Tab	Lessor	Lessee
Debt Instrument	Required	Required
Lender/Lessor Information	Required but information is optional	Required
Lender/Lessor COA	Required	Prohibited
Borrower/Lessee Information	Required	Required but information is optional
Borrower/Lessee COA	Prohibited	Required
Schedule	Required	Required
Schedule Details	Required	Required
Debt Costs	Optional	Optional
Debt Instrument Alerts	Optional	Optional

Leases have several features and restrictionsfeatures and restrictions that are not applicable to Loans or Bonds:

While leases where you are the lessor likely originate in the finance areas like bonds and loans, those leases where you are the lessee originate in the procurement area as part of the lease/purchase decision. Because of the involvement in the procurement process, leases have the ability to encumber funds for future lease payments on the Purchase Order transaction type in addition to the General Accounting Encumbrance transaction.
When a Purchase Order has been recorded to encumber funds for a lease, a Payment Request will be system-generated by a Debt batch process for payment instead of the General Accounting Expenditure. If the lessor is sending you invoices for lease payments and the commodity code on the Purchase Order has a matching rule requiring only an Invoice, you may want to skip selection of the lease by the Debt batch job and let Matching create payments. The Manual Payments/Billing flag on the lease transactions allow for this. As another note about the matching status, if using the Debt batch process to create payments, ensure the commodity code on the Purchase Order does not require a Receiver and an Invoice. The match rule should be No Match.
The Fixed Asset and Debt Management areas are connected for leases in a way not available for loans and bonds. While not mandatory, assets that are being leased or leased out often are recorded as Fixed Assets for tracking and possibly depreciation or warranty purposes. The lease transactions have fields to identify a Fixed Asset Number and Fixed Asset Component Number just as the Fixed Asset transactions have a field to identify the Debt ID of a lease on the Component tab. Population on one transaction updates not only the inquiry pages for that functional area but also the inquiry pages for the other functional area. The advantage of using the Fixed Asset transactions to make the connection is that the Fixed Asset Component Journal will include the connection for reporting purposes.
It is suggested that entries be added to the Fixed Asset Acquisition / Disposition (FADM) page for ‘asset leased’ and ‘asset leased out’ if they are not already in order to report on Fixed Asset activity quickly instead of looking up an associated Debt ID to find out what the Lessor/Lessee Indicator is: Additional Fixed Asset Types (FATP) are also suggested to control such items as depreciation on an asset that is leased out.
Leases have a very unique set of Schedule fields with the Lease End Option, Lease End Amount, and Down Payment amount fields so that the five ‘Other Amount’ fields do not have to be used for these common lease amounts. Leases are the only type of debt where a down payment exists that reduces the amount of payable or receivable initially recorded. Also, leases have options at the end of the lease that are unique to that type of debt:
Normal Purchase - Selected when there is an option to purchase a leased asset but the price does not qualify as a bargain purchase.
Bargain Purchase - Selected when there is an option to purchase a leased asset and the price qualifies as a bargain one.
No Cost Transfer - Selected when there is not an option to purchase a leased asset but ownership is conveyed at the end of the lease without cost.
Guaranteed Residual Value - When the leased asset has a guaranteed residual value at the end of the lease.
Unguaranteed Residual Value - When the leased asset has an unguaranteed residual value.
Renewal Penalty - When the lease carries a penalty if not renewed into another lease.
No Option - No purchase option, residual value guarantee, or penalty exists.
Leases are the only type of debt where a down payment exists that reduces the amount of payable or receivable initially recorded. When a down payment is entered, the action that automatically generates Schedule Lines will treat them as payments at the beginning of a period instead of payments being made at the end of the period. Down payments are designed to be regular payments made in full at the time of the lease (payment of the last payment up front). If any other costs are paid or billed at the start of a lease such as a deposit, those are done with one of the five Other Amounts.
Leases are restricted to just two types of payment schedules: Amortized Payment and Other. The Principal in Last Payment (PILPO) options found with bonds and loans are not available for leases.
Operating leases will not allow an interest rate other than 0% because this type of lease is really rent, and interest is prohibited.
As there are no proceeds transferred with a Lease as with Loans or Bonds, costs that can be amortized are first paid/collected by accounting transactions that should have the lease Debt ID. It is recommended that such costs are also logged on the Debt Costs tab for the lease.
Leases are the only Major Type of Debt that allows more than one record on the Borrower Information tab.
Leases have the potential of having to be completely redefined in Debt Management with the yearly re-evaluation of whether a lease is operating or capital. When the evaluation shows an asset has to change, the first one has to be ended using a LEASEM transaction and manual accounting to remove any outstanding balances. Then a new LEASES transaction has to be entered for the remaining amount of the lease, establishing it under a new Debt ID. The two Debt Management records can (and should be) then be tied together with one of the Related Debt Instrument fields.
Leases have Schedule Detail Types that are not available to Loans or Bonds in addition to Regular Payment and Amortization:
Down Payment - This setting is used when a lease has payments made at the beginning of the payment period so an amount was entered in the Down Payment field on the Schedule. The Down Payment Event Type from the Debt Type page is used when the system creates a transaction for this schedule line.
Purchase Payment - This setting is used when there is a Lease-End Option of Bargain Purchase or Normal Purchase and the Lease End Option Informational flag isn’t checked because it is fairly certain the leased asset will be purchased and not returned. The Repayment of Principal and the Interest Event Type fields from Debt Type are used when the system creates a transaction for this schedule line.
Renewal Penalty Payment - This setting is used when there is a Lease-End Option of Renewal Penalty and the Lease End Option Informational flag isn’t checked because it is fairly certain the lease will not be renewed. The Repayment of Principal and the Interest Event Type fields from Debt Type are used when the system creates a transaction for this schedule line.
Residual Value Adjustment - This setting is used when there is a Lease-End Option of Unguaranteed Residual Value or Guaranteed Residual Value and the Lease-End Option Informational flag isn’t checked because it is fairly certain the leased asset will be worth that value at the end of the lease. The Repayment of Principal and the Interest Event Type fields from Debt Type are used when the system creates a transaction for this schedule line.

For a full explanation of the delivered accounting events for leases, please see the "Leases" topic under Accounting Model Delivered Configuration > Debt - Accounting Model in the Financial Administration User Guide.