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Change qnd Review a Lease Classification in Occupier
Determine the classification change
When a lease is modified, the lessee is required to re-assess lease classification. Therefore, lease classification can change upon a modification event.
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Operating to Finance
- Common for equipment leases where the lessee has extended the term and now trips the “useful life” classification test. This is where the lease term covers a substantial portion of the equipment's economic life.
- Finance to Operating
- Common for equipment leases when the term has reduced and no longer qualifies as a Finance lease.
- Short Term to Operating
- Common for real estate leases that have been extended over 12 months.
- Short Term to Finance
- Common for IFRS 16 or GASB 87 real estate leases that have been extended over 12 months.
Need more help? For more in-depth information on Operating, Finance, and Short-Term lease definitions, please refer to the provided links.
To gain more insight on when to change a lease classification, you can refer to the following article: When would I need to reassess a lease classification?
Changing a lease classification
After completing the reassessment and determining that a lease classification change is necessary, proceed with the same process used for lease modifications and select the appropriate classification for the modification. See Step 7- How do I recognize a lease?
After the classification change and measurement have been finalized, the application will automatically showcase the latest amortization schedule. This schedule will commence from the period when the classification change was implemented, and the relevant cells will be visibly highlighted. Select "Export" to view the amortization schedules in excel for all measurements. The example below is a Short-Term Lease with a subsequent classification change to a Finance lease.
When reviewing the exported amortization schedules, each tab will display the most up-to-date measurement and journal entries, along with any previous measurements and journal entries.
Review a Lease After a Classification Change
The journal entries in Occupier contain the classification type for reporting purposes. On the journal entry page, users have access to various filters, including the classification type.
In the example below from the Journal Entries page, the lease mentioned above has been filtered for Finance journal entries. To view the Short-Term journal entries for the same lease, you have the option to change the classification type to Short-Term.
Furthermore, the Journal Entries, Measurements, Disclosures and Roll Forward reports will provide information for a lease both before and after the classification change.
As shown in the example below from the Lease Expense section of the Disclosures Report, the calculation incorporates the short-term amounts prior to the modification event that led to the change in lease classification.
To locate the detailed journal entries for the short-term lease expense, navigate to the Short-Term Lease Expense tab. Here, you will find the supporting journal entries displayed.
As shown in the example below in the Cash Flows and Maturity analysis sections of the Disclosures Report, the calculation takes into account the Finance amounts subsequent to the modification event that resulted in the change of lease classification to a Finance lease.
To access the supporting journal entry detail, you can conveniently select any of the corresponding tabs for the line items that are shown in the summary of the Disclosures Report. In the provided example, the supporting journal entry tab that supports the Financing Cash Flows from Finance leases amount showcases the journal entries that occur after the change in lease classification. Please feel free to explore the other tabs to access additional journal entry details for the calculations provided in the summary page.
The Roll Forward report by lease provides a comprehensive overview of the lease classification as of the selected reporting periods.
You can access the Measurements page to view the lease classification for each type before and after the classification change, which also includes the lease assumptions. In the example below, you can observe the measurements and classifications before and after the classification change.
