Terminate Lease Contract

Explanation

This activity is used to terminate the lease contract by using the right mouse button option Terminate Lease Contract on the header or the General tab of the Lease Accounting Contract window.

Prerequisites

In order to terminate a lease contract, the following must have been completed:

• A fixed asset object of type Right-of-use must have been connected to the lease contract.
• Status of the Lease Contract should be in the status Active.
• Lease Accounting Periodical Proposals must have been created and posted for the required accounting period(s) until the Termination Date.
• Lease Accounting Payable Proposals must have been created and posted for the installment(s) due until the Termination Date.
• If the Leasing Type of the contract is Finance, depreciation proposals must have been created and posted for the required accounting period(s) until the Termination Date.
• The Posting Types FAP 81, FAP 82, FAP 83, FAP 84, FAP 85, FAP 86, FAP 87, FAP 88, FAP 89 and FAP 90 must have been defined in Posting Control window.
• A voucher type with Function Group A must have been defined in Voucher Type window.
• If the Leasing Type of the contract is Operating and the contract currency is different to the accounting or parallel currency, the automatic termination postings cannot be created. For such contracts, the termination should be handled manually.

System Effects

As a result of this activity:

• Amounts are suggested for the Balances-Lease Liability, Balances-Right of Use Asset and Posting Information group boxes based on the given Termination Date.
  
  The calculations and values in each group box are explained below.
  
  Balances - Lease Liability
  The lease liability balance in contract, accounting and parallel currency of the lease contract by the termination date are shown in this group box. The values are not editable.
  
  Balances - Right of Use Asset
  
  Acquisition: The balances of the right of use asset in accounting and parallel currency by the termination date are shown in the Acquisition sub group box. The values are not editable.
  
  Depreciation/Amortization: The accumulated depreciation/amortization balances of the right of use asset in accounting and parallel currency by the termination date are shown in Depreciation/Amortization sub group box.
  If the Leasing Type of the lease contract is Finance, these fields show the accumulated depreciation balances in accounting and parallel currency based on the book specified in the Book ID field. If the Leasing Type of the lease contract is Operating, these fields show the balances of the Periodical ROU Asset- Amortization in accounting/parallel currency posted through the Lease Periodical Accounting Proposal(s) for the respective lease contract. The values are not editable.
  
  Net Book Value (NBV): The net book values of the right of use asset in accounting and parallel currency are shown in Net Book Value sub group box. These values are the respective acquisition value in accounting/parallel currency minus respective accumulated depreciation/amortization balances in accounting/parallel currency. The values are not editable.
  
  Posting Information
  
  Currency Differences – Gain/(Loss): The total realized currency gains or losses pertaining to the lease liability in accounting and parallel currency by the termination date are shown in this field. This happens in foreign currency contracts where the Recognition Postings are created at one rate and the Lease Accounting Proposals are created at different rates. In such instances, when calculating the currency gains/losses, the lease liability is re-calculated at the accounting/parallel currency rates prevailed when creating the Recognition Postings. Then the difference between the actual lease liability balance (shown in the Balances-Lease Liability group box) and such re-calculated lease liability balance is considered as a Currency Difference- Gain/(Loss) in the Terminate Lease Contract window.
  
  Termination Gain/(Loss): The difference between the Lease Liability and the Net Book Value of the right of use asset in the respective currency is shown here.
  
  Example:
  
  The values (hypothetical) given in the following example are in accounting currency only and the same is applied for parallel currency.
  
  Lease Liability: CU 1250 (A)
  
  Right of Use Asset- Acquisition: CU 1000 (B)
  
  Right of Use Asset- Depreciation/Amortization: CU 600 (C)
  
  Right of Use Asset- NBV: D = B - C
  = (1000-600)
  = CU 400
  
  Currency Differences – Gain (Loss): CU –250 (E)
  
  Termination Gain/(Loss): F = (A - (E)) - D
  = (1250 - (-250)) - 400
  = CU 1100 (Gain)
• Voucher(s) is/are created and transferred to the hold table in IFS/Accounting Rules.
  
  In termination, the existing values in the lease liability, right-of-use asset-acquisition and accumulated depreciation/amortization should be cleared. The remaining balances arising from clearing these balances are posted as Termination Gain/Loss after adjusting the respective currency differences, if any. A summary of the postings in Termination of Lease Contract is explained below using the values in the example explained above.

* FAP 82 posting type is created instead of FAP 0 posting type, if the Leasing Type is Operating in Lease Accounting Contract/General tab.
** If there is a gain from currency differences, FAP 87 and FAP 88 will be created.
*** If there is a loss from termination, FAP 85 and FAP 86 will be created.

• The status of the lease contract is set to Closed and the connected FA object status is set to Scrapped.

Window

Lease Accounting Contract
Lease Accounting Contracts

Related Window Descriptions

Lease Accounting Contract
Lease Accounting Contracts
Termination/Acquisition Details

Procedure

Use the following procedure to terminate a lease contract:

1. Open the Lease Accounting Contract window and search for the lease contract which you want to terminate.
2. Select right mouse button option Terminate Lease Contract on the header or the General tab of the Lease Accounting Contract window to open the Terminate Lease Contract window.
3. Modify the termination date suggested by default if necessary.
4. Use the List of Values and enter a termination reason of the lease contract. Termination reasons should be defined of the type Disposal Reasons in the Transaction Reasons window in order to use in this field.
5. Modify the posting information entered by default in the Voucher Information group box if necessary.
6. If the Leasing Type is Finance in Lease Accounting Contract/General tab, modify the default Book ID in the Balances – Right of use Asset group box if necessary. The postings relating to the termination/acquisition of lease asset will be displayed/created based on the book ID selected in this field only.
7. Make sure that the values suggested in the Posting Information group box is correct.
8. Save the information to create the automatic postings.
9. Alternatively, you can also terminate a lease contract from the Lease Accounting Contracts window.